Petition for Writ of Certiorari — A. A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.
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No.
(No. A-275) 4n°
Supreme Court of the United States
() oT rere 1QGRQ
4.A. POULTRY FARMS, IN¢
BOOMSMA PRODUCE, IN¢
BOOMSMA PRODUCE OF MISSOURI, IN‘
GRESSEL PRODUCE CO., IN¢
HEMMELGARN & SONS, IN¢
MENDELSON EGG CO. OF WEST UNITY
a/k/a MENDELSON EGG CO.,
PETER PRODUCE, IN¢
ROSE ACRE FARMS, IN¢
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
(yr ¢ inSé I B
A FRE! { } ‘ " Vi i, R YAU. A
BRANN & ISAACSON 2070 Ma
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184 Main Street 10 We \
Lewiston, Maine 04240 a
7 7 ‘ hh ‘ 16,4.» *
(207) (86-3506 2's
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WARREN S. RADLE! Re
RIVKIN, RADLER, DUNNI A
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& BAYH —
30 North LaSalle Street .
Suite 4300
Chicago, Illinois 60602
(312) 782-5680
Midwest Law Printing ‘ Chicago 6061] lz eltice
i
QUESTIONS PRESENTED
1. In the determination of requisite harm to competi-
tion in predatory pricing cases:
(a) Whether monopolistic recoupment should be
adopted as the exclusive measure of harm to com-
petition, even in an oligopolistic market?
(b) Whether the holdings of the Seventh Circuit and
First Circuit that predatory intent is irrelevant to
the issue of harm to competition directly conflict with
this Court’s decision in Utah Pie Co. v. Continental
Baking Co., 386 U.S. 685 (1967), and with decisions
of the Ninth and Eleventh Circuits?
(c) Whether the Seventh Circuit properly rejects all
pricing below-cost standards as evidence of harm to
competition, regardless of cost standard and method-
ology, in light of the long-standing, unanimous deci-
sions of this Court, the circuit courts, and the district
courts attaching substantial, and even controlling,
weight to below-cost sales?
2. Are physically identical goods of “like grade and
quality” under the Robinson-Patman Act, or does the Act
exempt all perishable goods without proof of their condi-
tion and actual or imminent deterioration?
3. Whether a seller who charges uniform base prices
to all customers, but who systematically, over a prolonged
period, gives special discounts to certain targeted cus-
tomers, is charging different prices and engaging in price
discrimination?
il
LIST OF PARTIES AND RULE 28.1 LIST
The parties to the proceeding below were petitioners
A.A. Poultry Farms, Inc.; Boomsma Produce, Inc.; Gressel
Produce Co., Inc.; Hemmelgarn & Sons, Inc.; Mendelson
Egg Company; Peter Produce, Inc.*; Boomsma Produce
of Missouri, Inc; and respondent Rose Acre Farms, Inc.
Pursuant to Supreme Court Rule 28.1, petitioners state
that Boomsma Produce, Inc. and Boomsma Produce of
Missouri, Inc. were subsidiaries of Boom-Co, and they
have now been merged into Boom-Co. None of the other
petitioners is the parent, affiliate or subsidiary of any
other corporation.
* Peter Produce, Inc. was dissolved on May 2, 1989.
ill
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED .................. i
LIST OF PARTIES AND RULE 28.1 LIST ... ii
pe OF 6 et yy 4. y iii
TABLE OF AUTHORITIES ................. V
SEO | occ ccs c ccc cesccccscccs l
ee Ck ne ibaa cs asses scence: 2
STATUTORY PROVISION INVOLVED ...... 2
STATEMENT OF THE CASE ............... 3
OC 6
See Ig cee eens *
REASONS FOR GRANTING THE WRIT .... 10
I(A).
Monopolistic Recoupment Cannot Be The Only
Evidence To Show Harm To Competition In
Predatory Pricing Cases, Particularly When
The Predatory Seller Is Part Of An Oligopo-
Eee wedge wcacucsccceccsccess 10
I(B).
The Square Split Between The Seventh And
First Circuits And The Eleventh And Ninth
Circuits On Whether Predatory Intent Is Rel-
evant As Evidence Of Harm To Competition
Should Be Resolved By This Court ....... 14
iV
I(C).
The Seventh Circuit’s Rejection Of All Cost-
Price Comparisons For Proving Harm To
Competition Conflicts With A Long Line Of
Federal Court Cases Employing Such An
BS i566 Sen cacGianscewatencuauaneres
Il.
This Court Should Resolve Whether Eggs
And Other Grocery Commodities With A Lim-
ited Shelf Life Are Exempt From The Robin-
SRP FN og ose wonncctseascccenrass
ITI.
This Court Should Resolve Whether Price Dis-
crimination Occurs, As A Matter Of Law,
When A Seller Grants To Select Customers
Persistent Special Discounts That Deviate
From The Seller’s Uniform Base Prices ....
sek ee eee Tre errr re re ree
APPENDICES:
Appendix A: Opinion and Order of the United
States Court of Appeals for the Seventh Circuit
CN Pre
Appendix B: Opinion and Order of the United
States District Court for the Southern District
of Indiana (February 3, 1988) ...............
Appendix C: Opinion and Order of the United
States District Court for the Southern District
of Indiana (November 17, 1986) .............
Page
15
18
22
25
A-1
B-1
V
TABLE OF AUTHORITIES
Cases Page
A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.,
1988-1 Trade Cas. (CCH) $67,999 (S.D. Ind
Taian ds oe be bmalow yy. aes 2,8
A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.,
683 F. Supp. 680 (S.D. Ind. 1988) (Appendix
MP Pe aC a4 eb Rb KaE ee beekabaaehens bicsaen passim
A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.,
881 F.2d 1396 (7th Cir. 1989) (Appendix A) ... passim
Arthur S. Langenderfer, Inc. v. S.E. Johnson Co.,
729 F.2d 1050 (6th Cir.), cert. denied, 469 U.S.
PU TIN Coches dy ans cadnenceneseeen pee i6
Barry Wright Corp. v. ITT Grinnell Corp., 724
¢ & .f: 9 Se. Saree 14
Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S.
EE AGG4 x ro W uke 6604 Rko eee ste ccup caer 15, 17
C.A.T. Industrial Disposal, Inc. v. Browning-
Ferris Industries, Inc., 884 F.2d 209 (5th Cir.
Tia Kc tas sound GiehE See nedenscapacess. 15
Ciamp-All Corp. v. Cast Iron Soil Pipe Institute,
851 F.2d 478 (1st Cir. 1988), cert. denied, __
U.S. - eS. Ct. Fad CIB6B) ........00- 15
Continental Baking Co. v. Old Homestead Bread
Co., 476 F.2d 97 (10th Cir.), cert. denied, 414
es iin oo eda ds sb ecnvaenss as 10
D&S Redi-Mizx v. Sierra Redi-Mix and Contracting
Co., 692 F.2d 1245 (9th Cir. 1982) ......... 17
Falls City Industries, Inc. v. Vanco Beverage, Inc.,
4. key ee 5, 6
vi
Federal Trade Commission v. Anheuser-Busch,
Fe., SB UB. GOB CHRD onc cccccccvccseccs
Henry v. Chloride, Inc., 809 F.2d 1334 (8th Cir.
PEGE 0h ckeaw dene nek Lake akercivi ser ensaes
In re American Motor Specialties Co., 55 F.T.C.
1430 (1959), aff'd, 278 F.2d 225 (2d Cir.), cert.
denied, 364 U.S. 884 (1960) ...............
In re D&N Auto Parts Co., 55 F.T.C. 1279
RE 55.chsn ceva seek ea Ubkaaecnbaeeteaeees
(EOD s00e cn eancendeeesstns con ctanveensses
Instructional Systems Development Corp. v. Aetna
Casualty and Surety Co., 817 F.2d 639 (10th
COR. BUG oka 0 hos 560000scacanancacepeeetss
International Air Industries, Inc. v. American Ex-
celsior Co., 517 F.2d 714 (5th Cir. 1975), cert.
denied, 424 U.S. 943 (1976) ...............
Kelco Disposal, Inc. v. Browning-Ferris Industries,
Inc., 845 F.2d 404 (2d Cir. 1988), aff'd on other
grounds, _.__ ~-U.S. ___, 109 S. Ct. 2909
+ Pere errrrrr se: oereey yy eee
Lombino & Sons, Inc. v. Standard Fruit & Steam-
ship Co., 1975-2 Trade Cas. (CCH) 460,527
75% | | ee eer
Matsushita Electric Industrial Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574 (1986) ..........
McGahee v. Northern Propane Gas Co., 858 F.2d
1487 (11th Cir. 1988), cert. denied, ____ U.S.
me Fe ee ee
MCI Communications Corp. v. American Tel. &
Tel. Co., 708 F.2d 1081 (7th Cir.), cert. denied,
O04 UD. GER GERD 6 ccc cuccuacScvececouses
16
17
21
15
14, 15
Vii
Monahan’s Marine, Inc. v. Boston Whaler, Inc.,
S06 F.2a GSS (ist Cir. 1900) ..........0005.
Moore v. Mead Service [o., 190 F.2d 540 (10th Cir.
1951), cert. denied, 342 U.S. 902 (1952) ....
National Dairy Products Corp. v. Federal Trade
Commission, 412 F.2d 605 (7th Cir. 1969) ...
Northeastern Tel. Co. v. American Tel. & Tel. Co.,
651 F.2d 76 (2d Cir. 1981), cert. denied, 455
Se EE so cca tin We's K Ken kak beke eas
O. Hommel Company v. Ferro Corp., 659 F.2d 340
(3d Cir. 1981), cert. denied, 455 U.S. 1017
SEE. SA vULN Gh PERERA ER RAGKE CRASS Se seh eeen
Southern Pacific Communications Co. v. American
Tel. & Tel. Co., 740 F.2d 980 (D.C. Cir. 1984),
cert. denied, 470 U.S. 1005 (1985) ..........
Times-Picayune Publishing Co. v. United States,
Pree
Transamerica Computer Co., Inc. v. International
Business Machines Corp., 698 F.2d 1377 (9th
Cir.), cert. denied, 464 U.S. 955 (1988) .....
U.S. Philips Corp. v. Windmere Corp., 861 F.2d
695 (Fed. Cir. 1988), cert. denied sub nom.,
North American Philips Corp. v. Windmere
Corp., __. U.S. ___., 109 S. Ct. 2070 (1989) ..
Utah Pie Co. v. Continental Baking Co., 386 U.S.
UTC RGEGA ce USaaaeheceusesenkeksd nes
William Inglis & Sons Baking Co. v. ITT Conti-
nental Baking Co., Inc., 668 F.2d 1014 (9th Cir.
1981), cert. denied, 459 U.S. 825 (1982) ... 14, 15,
—
Page
10,
16
16
16
11
16
14
14
16
Vill
Statutes Page
Section 2(a) of the Robinson-Patman Act, 15 U.S.C.
ti ee errr cree passim
Section 2 of the Sherman Act, 15 U.S.C. §2
NG oc le ee ee er a ee oh ll
Section 4 of the Clayton Act, 15 U.S.C. §15
eRe IEE SR SreGe Pienrt | apie 84 2 Je SRE Nia a ay ne eT ‘
Section 1254(1) of the Judicial Code, 28 U.S.C.
es UR on 2
Rules
Fed. R Civ P. 4(b) Ee a Et ee ESD ee tye 2
Other Authorities
2 P. Areeda & D. Turner, Antitrust Law, 4 404
I ocala cea i a rl ee eee 11, 12
Easterbrook, Predatory Strategies and Counter-
strategies, 48 U. Chi. L. Rev. 263 (1981) ... 5,16
Robinson-Patman Act: Hearings on H.R. 4995,
H.R. 5062 and H.R. 8442 Before the House
Comm. on the Judiciary, 74th Cong., Ist Sess.
1G RR ne ey: 20
E. Kintner, Legislative History of the Antitrust
oe ss eee, <r ae 12
Scher, How Sellers Can Live With The Robinson-
Patman Act, 41 Bus. Law. 533 (1986) ..... 21
S. Rep. No. 1502, 74th Cong., 2d Sess. 4 (1936) .. 12
G. Stigler, Monopoly and Oligopoly by Merger,
The Organization of Industry 105 (1968) ... 12
IN THE
Supreme Court of the United States
OCTOBER TERM, 1989
A.A. POULTRY FARMS, INC.,
BOOQMSMA PRODUCE, INC.,
BOUMSMA PRODUCE OF MISSOURI, INC.,
GRESSEL PRODUCE CO., INC.,
HEMMELGARN & SONS, INC.,
MENDELSON EGG CO. OF WEST UNITY,
a/k/a MENDELSON EGG CO.,
PETER PRODUCE, INC.,
Petitioners.
ROSE ACRE FARMS, INC.,
Re sponde nt
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
OPINIONS BELOW
The opinion of the United States Court of Appeals for
the Seventh Circuit is reported at 881 F.2d 1396 (1989)
and is reprinted as Appendix A. The post-verdict opinion
of the United States District Court for the Southern Dis
trict of Indiana is reported at 683 F. Supp. 680 (1988) and
ilies
is reprinted as Appendix B. The earlier opinion of the
district court is reported at 1988-1 Trade Cas. (CCH)
€ 67,999 (S.D. Ind. 1986) and is reprinted as Appendix C.1
JURISDICTION
The opinion and order of the distri-t court was entered
on February 3, 1988 and certified the issues decided there-
in for immediate appeal pursuant to Federal Rule of Civil
Procedure 54(b). (B-4). Following a timely appeal, the opin-
ion and order of the United States Court of Appeals for
the Seventh Circuit was entered on August 4, 1989. This
Court has jurisdiction pursuant to 28 U.S.C. § 1254(1).
STATUTORY PROVISION INVOLVED
Section 2(a) of the Robinson-Patman Act, 15 U.S.C.
§ 13(a) (1982), provides, in pertinent part, that:
It shall he unlawful for any person engaged in com-
merce, in the course of such commerce, either directly
or indirectly, to discriminate in price between dif-
ferent purchasers of commodities of like grade and
1 References to “A” are to Appendix A, the Court of Appeals
Opinion; references to “B” are to Appendix B, the District Court
Opinion; and references to “C” are to Appendix C, the earlier
district court opinion denying Rose Acre’s motion for summary
judgment. References to the transcript of the trial and to the trial
exhibits are by date, page numbers, and exhibit number: e.g., “Tr.
10/13/87 A.M., 91; bx. gf
—f—
quality, . . . where the effect of such discrimination
may be substantially to lessen competition or tend
to create a monopoly in any line of commerce .. . ;
And provided further, That nothing herein contained
shall prevent price changes from time to time where
in response to changing conditions affecting the mar-
ket for or the marketability of the goods concerned,
such as but not limited to actual or imminent deteri-
oration of perishable goods, obsolescence of seasonal
goods, distress sales under court process, or sales in
good faith in discontinuance of business in the goods
concerned.
STATEMENT OF THE CASE
Total chaos exists in the federal courts concerning the
relevant and necessary elements of proof in a predatory
pricing case. The case below both illustrates and exacer-
bates this chaos. It results in marked disagreement in the
construction of antitrust statutes, forum shopping, and
greatly increased costs to litigants. Lack of uniformity on
the basic elements in a predatory pricing case has pro-
duced a tangle of conflicting precedent that only this
Court can unravel. Not only is there conflict among the
circuits in the basic approaches, but the problems are
manifested in this case where, after the jury verdict, the
district court reversed its own key rulings and standards
that guided the trial, and then the Seventh Circuit adopted
yet a third, substantially different approach within the
same case.
The fundamental issue on which the circuit courts dis-
agree is this: what evidence constitutes sufficient proof
of harm to competition in a predatory pricing case? The
a |
a
court below, in a sweeping’ departure from precedent of
this Court, the Seventh Circuit itself, and its sister cir-
cuits, adopted an exclusive test of monopolistic recoup-
ment as the indispensable prerequisite for predatory pric-
ing. (A-9-10, 13). Under Judge Easterbrook’s standard, the
key is not simply recoupment but recoupment through
achieving monopoly power:
In either case [under §2 of the Sherman Act or
under the Robinson-Patman Act], the gravamen is
that the aggressor sold goods for too little money,
hoping to cripple or discipline rivals so that it might
sell its wares for a monopoly price later, recouping
the losses and adding a hefty profit, to the detriment
of consumers.
(A-7) (emphasis added). In importing this unworkable Sher-
man Act standard of monopolistic recoupment into preda-
tory pricing cases under the Robinson-Patman Act, the
court below expressly eliminated predatory intent from
consideration in a predatory pricing case. (A-13). It fur-
ther rejected the universally accepted concept of persis-
tent pricing below cost as proof of harm to competition,
dismissing all cost standards as equally irrelevant. (A-7-8).
Moreover, the court below adopted a new rule making
it virtually impossible to prove a violation of the Robinson-
Patman Act for a perishable commodity. It accomnlished
this by reversing the statutory burden of proof dictated
by Section 2(a) of the Robinson-Patman Act, which has
profound effects in the perishable commodity markets. The
court ruled for the first time as a matter of law that com-
modities, including eggs yet unlaid, that may perish any
time in the future are not of “like grade and quality” as
required by Section 2(a), thereby eviscerating the Robin-
son-Patman Act as applied to the grocery industry, which
the Act was explicitly designed to control. Physically iden-
tical eggs are, by the opinion, admittedly treated as unlike,
—j—
and unlaid eggs promised for future delivery are somehow
also presumed to be exempt or deteriorating. The Seventh
Circuit thus sustained that portion of the district court’s
ruling (B-47-49) which mandated a per se exception for
commodities with a finite shelf life that necessarily applies
to all food items and shifted the burden of establishing
an affirmative defense of imminent deterioration under the
Act from the defendant seller to the plaintiff, contrary
to the Act itself and Supreme Court precedent. (A-22-23).
Despite Judge Easterbrook’s allegation of “(widespread
civil disobedience in the judiciary . . . to [this Court’s de«i-
sion in} Utah Pie” (A-16), and the conflicting criteria
among the circuits, the decision below is the most radical
departure from the Robinson-Patman Act. It directly fol-
lows then-Professor Easterbrook’s well-known position and
agenda for abolishing the Robinson-Patman Act, including
as subsidiary points his contentions that intent and below
cost pricing are irrelevant and “unproductive” standards.
For example, in Predatory Strategies and Counterstrate
gies, 48 U. Chi. L. Rev. 263, 281, 337 (1981), Professor
Easterbrook wrote that ‘[tJhe antitrust offense of preda
tion should be forgotten.”’:
The theoretical case for a rule against predation is
too weak, the damages measures too inaccurate, and
the administrative costs too high to justify interven-
tion designed to control the prices charged by rivals.
id. at 265. Under the guise of “streamlining” antitrust
law (A-12), and while professing merely to attack Utah
Pie, Judge Easterbrook is actually accomplishing his ob-
jective of repealing the Robinson-Patman Act, both in its
fundamental principles and by altering its burdens of proof.
However, as this Court aptly concluded in Falls City In-
dustries, Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 436
—6—
(1983), ‘[t]he determination whether to alter the scope of
the [Robinson-Patman] Act must be made by Congress,
not by this Court . . .” or by the Seventh Circuit.
The court below drastically departs from well-established
precedent, engages in supposition which finds no support
in the record, and creates non-existent facts, all resulting
in deconstruction of the antitrust statutes. Furthermore,
litigants and the lower federal courts are floundering in
a sea of conflicting and contradictory standards for proof
of harm to competition in predatory pricing cases. The
issues presented here are therefore of exceptional national
significance which warrant review and resolution by this
Court.
A. Statement of Facts
This is a “primary line’? Robinson-Patman Act case
brought against the respondent, Rose Acre Farms, Inc.
(“Rose Acre’), for systematic illegal price discrimination
over several years in the sale of eggs to ten targeted
customers. Petitioners here are the seven plaintiffs who
individually competed with Rose Acre in geographic mar-
kets in the Midwest in processing shell eggs. (A-2; B-8-9).
Even Judge Easterbrook conceded that the jury heard
evidence of the accelerated oligopolistic trend in egg proc-
essing markets. (A-4). The continuing trend was shown,
in part, by the departure of over 75%, or 3,300, egg proc-
essors between 1976 and 1986. By that time, only 13 firms
in four midwestern states processed at least 10,000 cases
of eggs per week, and the entry barriers had risen so
that the minimum optimum size for an egg processor re-
quired handling at least 10,000 cases per week from about
one million laying hens. (Tr. 10/13/87 A.M., 91-92; PEx. 7).
-
—(—
In the 1970’s, Rose Acre began a major plant expan-
sion and new marketing program. As part of its expan-
sion program, Rose Acre borrowed $13 million (an amount
more than the book value of its assets (PEx. 40B)) to build
additional production facilities. The new facilities ultimate-
ly generated not occasional short-run surpluses but rather
400 million eggs (PEx. 55) to be marketed each year de-
spite the inelastic demand for eggs, the slow market in-
crease in demand, and the grocery wholesalers’ and re-
tailers’ narrow competitive profit margins—often averag-
ing one percent.
To market the additional production, Rose Acre chose
not to cut its prices across the board (which would cause
it huge losses) but instead offered selective discriminatory
prices to a few large, targeted customers. Rose Acre en-
gaged in a persistent strategy that overcame these ob-
stacles and resulted in dramatically increased revenues.
Rose Acre priced its eggs without regard to its costs of
production. (A-4-5).2 The ten large customers of petitioners
targeted by Rose Acre were located outside Indiana and
each was supplied by one, or occasionally two, of the
seven petitioners. Before 1978, Rose Acre sold virtually
no eggs beyond a 100-mile radius of Indianapolis, Indiana.
(Tr. 10/19/87 P.M., 59).
Rose Acre’s tremendous growth was accomplished by
the selective offering of “special” prices on eggs that were
2 Rose Acre’s persistent pricing strategy, directed at select cus-
tomers, involved three steps: (1) offering each one discriminatory
prices that it progressively lowered until the customer’s business
was finally obtained; (2) maintaining those prices for a substantia!
period to firmly secure the customer’s business; and (3) then rais-
ing prices offered to the customer by decreasing the frequency
of the discriminatory price concessions. (Tr. 10/7/87 A.M., 43-45;
Tr. 10/8/87 A.M., 79-80, 86; PEx. 94 at 8-10).
x =
below its average total cost, below its long run incremen-
tal cost, and even below its average variable cost. The
court below obscured the sales below any conceivable cost
standard by merely conceding that “the jury in this case
would have been entitled to conclude that Rose Acre sold
some of its eggs, some of the time, for less than average
total cost.”’ (A-19).
B. Prior Proceedings
The complaint, later amended, was filed on April 21,
1981, alleging a violation of Section 2(a) of the Clayton
Act of 1914, as amended by the Robinson-Patman Act of
1936, 15 U.S.C. § 13(a) (1982), against Rose Acre, based
on illegal price discrimination. On December 1, 1983, Rose
Acre moved for summary judgment. On November 17,
1986, the district court denied Rose Acre’s motion for
summary judgment. A.A. Poultry Farms, Inc. v. Rose
Acre Farms, Inc., 1988-1 Trade Cas. (CCH) ¢ 67,999 (S.D.
Ind. 1986) (Appendix C).
The trial of the Robinson-Patman claims was conducted
from October 5 through 23, 1987. The jury returned ver-
dicts in plaintiffs’ favor, separately assessing two categories
of actual damages as to each of the seven plaintiffs. Those
verdicts totaled $9,265,634, subject to trebling pursuant
to Section 4 of the Clayton Act, 15 U.S.C. § 15 (1982).
Post-trial motions followed. On November 6, 1987, Rose
Acre moved for a judgment notwithstanding the verdict
(‘judgment n.o.v.”) and, alternatively, for a new trial on
the plaintiffs’ Robinson-Patman claims. On February 3,
1988, the district court entered its opinion granting Rose
Acre’s motion for judgment n.o.v., and alternatively a new
trial. A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.,
683 F. Supp. 680 (S.D. Ind. 1988) (Noland, J.) (Appendix
B).
a
The district court, acknowledging “the voluminous docu-
mentary evidence” (B-17 n.4) of price discrimination, found
that Rose Acre made contracts guaranteeing customers
“‘a specific number of . . . specials’”’ (B-17) which varied
from Rose Acre’s base prices and that “Rose Acre did
not offer the same quantity of specials to each of its cus-
tomers, nor did it sell all of its specials to the various cus-
tomers at the same price.”’ (B-23). The court nonetheless
held that plaintiffs had failed to prove “injury to compe-
tition.”” (B-46). Additionally, the district court concluded
that a judgment n.o.v. was also warranted because all of
Rose Acre’s discriminatory sales over the five-year period
were within the “changing conditions’’ exception to Sec-
tion 2(a) of the Robinson-Patman Act (B-49), even though
Rose Acre made no showing that even one of its “spécial”’
sales of millions of eggs over the relevant years involved
imminently deteriorating goods.
Following petitioners’ timely appeal of the district court’s
February 3, 1988 decision, the Seventh Circuit issued its
opinion on August 4, 1989, affirming the district court’s
decision, but on other grounds. A.A. Poultry Farms, Inc.
v. Rose Acre Farms, Inc., 881 F.2d 1396 (7th Cir. 1989)
(Appendix A).
=
REASONS FOR GRANTING THE WRIT
I(A).
Monopolistic Recoupment Cannot Be The Only Evi-
dence To Show Harm To Competition In Predatory
Pricing Cases, Particularly When The Predatory Seller
Is Part Of An Oligopolistic Market.
In predatory pricing cases, either under the Sherman
Act or the Robinson-Patman Act, the plaintiff has the
statutory burden to show harm to competition. Under the
Robinson-Patman Act, the requisite threshold is expressly
different from and lower than that of the Sherman Act:
only price discrimination which “may . . . substantially
lessen competition . . . in any line of commerce’’ needs
to be demonstrated. 15 U.S.C. § 13(a) (emphasis added).
It has been recognized generally that harm to competi-
tion can be satisfied by either actual competitive injury
or predatory intent proven by either express evidence of
predatory intent or the inference of predatory intent by
showing pricing below cost.? The debate in the circuits as
to the appropriate standards by which to establish preda-
tory intent has raged for over a decade and finally has
come to a head with the Seventh Circuit’s recent deci-
sion in Rose Acre, further exacerbating the conflict.
The Seventh Circuit would now abolish both predatory
intent and pricing below cost as means to establish
harm to competition. In place of these two long-standing
3 See O. Hommel Co. v. Ferro Corp., 659 F.2d 340, 347 (3d Cir.
1981), cert. denied, 455 U.S. 1017 (1982); Continental Baking Co.
v. Old Homestead Bread Co., 476 F.2d 97, 103-104 (10th Cir.), cert.
denied, 414 U.S. 975 (1973).
x,
methods of proof, the court below adopted monopolistic
recoupment as the only means to show harm to competi-
tion and has applied that standard to Robinson-Patman
Act cases, as well as to Sherman Act Section 2 cases.
The court below opined that in either a Robinson-Pat-
man Act or Section 2 Sherman Act case, “the gravamen
is that the aggressor sold goods for too little money, hop-
ing to cripple or discipline rivals so that it might sell its
wares for a monopoly price later, recouping the losses
and adding a hefty profit, to the detriment of consumers.”
(A-7) (emphasis added). Relying on Sherman Act tying
cases, the court proceeded to state that. as a matter of
law, single-firm shares of 30% or less cannot establish a
monopoly. (A-14).4 The court then concluded that because
Rose Acre did not occupy such a market position, it could
not have recouped its losses through a monopoly price
later. (A-13-14).
In adopting a monopolistic recoupment test as the sole
basis for establishing liability in a predatory pricing case,
the lower court erroneously limits Robinson-Patman Act
predation to a monopolist and effectively rejects the Act’s
protection against an oligopolist such as Rose Acre.5 An
4 One of the very cases the court below relies on in articulating
this so-called rule of law is Times-Picayune Publishing Co. v.
United States, 345 U.S. 594, 612 (1953), which expressly recognizes
that ‘“‘no magic inheres in numbersj.] The relative effect of per-
cen command of a market varies with the setting in which
that factor is placed.” Aliso, in creating this so-called rule of law,
the lower court dangerously ignores the oligopolistic market set-
ting where often no one competitor, by the nature of the market,
possesses a 30% share.
5 As defined by Professors Areeda and Turner: “An oligopoly
market is one in which a few relatively large sellers account for
all or the bulk of the output. . . . Oligopoly differs from monopoly
(Footnote continued on following page)
=)
oligopolistic market by its definition or nature will not
be dominated by one seller. The nature of the goods and
geographic distribution limitations, among other factors,
dictate that some markets will never have a single seller
in a dominant market position capable of recouping its
losses with monopolistic higher prices. Such an economic
reality does not mean that any seller in such an oligopolis-
tic market should be allowed free rein to manipulate prices
to drive out smaller competitors or, as is a common oli-
gopolist’s objective, to deter and exclude new entrants.
Establishing monopolistic recoupment as the only evidence
of harm to competition will permit just that, and such a
construction nullifies the Robinson-Patman Act.
While “oligopoly is a weaker form of monopolization
than the single firm . . . it is not so weak a form that
it can be left to its own devices.” G. Stigler, Monopoly
and Oligopoly by Merger, The Organization of Industry
105-106 (1968). The Robinson-Patman Act’s legislative his-
tory shows that its drafters intended to protect against
an oligopolist’s predation: “only through such . . . injuries
. can the larger general injury [to competition] result,
and to catch the weed in the seed will keep it from com-
ing to flower.”” S. Rep. No. 1502, 74th Cong., 2d Sess.
4 (1936), reprinted in E. Kintner, Legislative History of
the Antitrust Laws 3012, 3015 (1978). Accordingly, the
Robinson-Patman Act must apply to the oligopolist who
is engaged in price discrimination ‘where the effect of
5 continued
in that no one firm can unilaterally determine market price by
varying its output because leading rivals can offset or ify the
effect by output changes of their own . . . . [TJhe distinctive char-
acteristic of oligopoly is interdependence among the leading firms:
the profit-maximizing choice of price and output for one depends
on the choices made by others.” 2 P. Areeda & D. Turner, Anti-
trust Law, 4404 at 272-73 (1978).
x=
such discrimination may be substantially to lessen compe
tition . . . in any line of commerce... .” 15 U.S.C. § 15a).
Moreover, as demonstrated by Rose Acre, an oligopolist
can recoup lost profits later.6 Recoupment can also be ac
complished by creating high entry barriers to limit the
number of competitors.? An oligopolist can also recoup Its
lost profits, as did Rose Acre, by using its market power
to increase substantially the degree of concentration in
a market, even though falling far short of a monopoly.
(PEx. 30 at ex. C).
Accordingly, the lower court’s requirement of monopolis
tic recoupment as the sole evidence of harm to compet
tion ignores harmful price discrimination by the oligopolist.
Such a decision creates total chaos among the circuits
regarding the prevailing standards to establish harm to
competition in predatory pricing cases. This confusion
results in a lack of uniformity in the construction of the
federal antitrust statutes, forum shopping, and greatly in
creased costs to litigants who are uncertain and at risk
as to what conduct constitutes harm to competition.
6 For example, in 1977, Rose Acre charged a base price four ce!
off Urner-Barry, whereas in 1981, its base price had fallen to eight
cents back of Urner-Barry. The impact of Rose Acre’s price ma
nipulation resulted in a dramatic downward spiral of market prices
In 1977, Chicago’s average egg price was 0.89 cents per dozer
below New York City’s egg prices. By 1981, Chicago prices had
fallen 4.24 cents below New York City. (PEx. 63). As established
at trial, the timing and depth of the decline was directly related
to Rose Acre’s discriminatory pricing strategy. When Rose Acr
abandoned its price discrimination after 1981 when suit was filed
Chicago’s egg prices rebounded. (PEx. 63)
Here, in early 1976, there were 4,394 egg processors. By 1956
1987, there were fewer than 903 nationally and only 167 in four mid
western states: Indiana, Ohio, Illinois, and Michigan. (Tr. 10/13/87
A.M., 91; PEx. 52-14ee).
—)]4—
I(B).
The Square Split Between The Seventh And First Cir-
cuits And The Eleventh And Ninth Circuits On Whether
Predatory Intent Is Relevant As Evidence Of Harm To
Competition Should Be Resolved By This Court.
The decision below draws the battle lines on the sharp
split among the circuits as to whether intent remains a
basis of liability in a predatory pricing case. This square
split produces unequal justice in that now the forum deter-
mines whether proof of intent is relevant in a predatory
pricing case.
Quoting Federal Trade Commission v. Anheuser-Busch,
Inc., 363 U.S. 536, 548 (1960), this Court noted that in
a predatory pricing case “the decisions of the federal
courts in primary line competition cases . . . consistently
emphasize the unreasonably low prices and the predatory
intent of the defendants.’’ Utah Pie Co. v. Continental
Baking Co., 386 U.S. 685, 696 n.12 (1967). However, re-
jecting those long-standing precedents, the court below,
in disagreeing with the Eleventh and Ninth Circuits and
following the First Circuit, stated that intent should not
be a basis of liability in a predatory pricing case. (A-13).§
While there are critical differences between the Sher-
man and Robinson-Patman Acts, as noted in Part I(A)
above, courts recognize no substantive distinction on the
8 See McGahee v. Northern Propane Gas Co., 858 F.2d 1487, 1496
(11th Cir. 1988), cert. denied, __._ ~U.S. ___, 109 S. Ct. 2110
(1989); William Inglis & Sons Baking Co. v. ITT Continental Bak-
ing Co., Inc., 668 F.2d 1014, 1027-28 (9th Cir. 1981), cert. denied,
459 U.S. 825 (1982); see also U.S. Philips Corp. v. Windmere
Corp., 861 F.2d 695, 703-704 (Fed. Cir. 1988), cert. denied sub
nom., North American Philips Corp. v. Windmere Corp., ——
U.S. ___, 109 S. Ct. 2070 (1989); cf, Barry Wright Corp. v. ITT
Grinnell Corp., 724 F.2d 227, 232 (1st Cir. 1988).
15
issue of predatory intent.® Accordingly, this Court should
resolve the issue of intent because now neither lawyers,
clients, nor courts know whether intent is relevant in
predatory pricing case.
KC).
The Seventh Circuit’s Rejection Of All Cost-Price Com-
parisons For Proving Harm To Competition Conflicts
With A Long Line Of Federal Court Cases Employing
Such An Analysis.
This Court has “defined predatory pricing as either
pricing below the level necessary to sell the [seller’s] pr
ucts, or (11) pricing below some appropriate measure
costs.’ "2° Pricing below cost is a standard that has
consistently employed by this Court to determine antitrust
injury. Following this Court’s lead, the lower federal courts
have uniformly employed a price-below-cost analysis,
though the exact measurement of cost has been approach
in various ways by the courts in different circumstances
See, e.g., W in” nolis & Sons. supra note &. 668 F 29d at 4
Jil. ; j Wiad t.
10
See Cargill, Inc Monfort of Colorad I> 179 U.S. 104
118 n.12 (1986) (quoting Mats ishita Electric Indust !
Ze nith Radio ( ‘Orn : 475 U.S. 57 1 584 nS 1YAH
11 See C.A.T. Industrial Disposal, In Brownina-Fe
dustries, Inc., 884 F.2d 209, 210 (5th Cir. 1989) (predatory pr
iS price below COSL): Monahan ’s Marine I Cc B ston Wi
Inc., 866 F.2d 525, 527 (1st Cir. 1989) (accord); Clamp-All (
Cast Iron Soil Pipe Institute, 851 F.2d 478, 483 (1st Cir. 198
cert. denied, _ US. , 109 S. Ct. 789 (1989) (predatory pr
is a price below some measure of cost set with the intent to eli
nate competition); McGahee v. Northern Propane Gas Co., su)
note 8, 858 F.2d at 1503 (11th Cir.) (prices above average tota
costs not predatory); Henry v. Chloride, Inc., 809 F.2d 1334, 1344
46 (8th Cir. 1987) (price must be below av erage Vamable st
y ‘ ¢ . ? al { ror ¥
(Footnote continued on | wing page
—16—
Here, however, the Seventh Circuit struck out on a con-
trary course which breaks with the established precedent
of price-cost analysis and rejected it as evidence of preda-
tory conduct.!? (A-7-8).
This case is particularly appropriate for review of the
relevance of cost-price standards since the evidence shows
that Rose Acre sold below any of the judicially applied
standards. While the Seventh Circuit opinion mentions
1 continued
be predatory); Instructional Sysiems Development Corp. v. Aetna
Casualty and Surety Co., 817 F.2d 639, 648 (10th Cir. 1987) (pricing
below average variable cost an indicator of predation); Southern
Pacific Communications Co. v. American Tel. & Tel. Co., 740 F.2d
980, 1006 (D.C. Cir. 1984), cert. denied, 470 U.S. 1005 (1985) (criticism
of various cost standards); Arthur S. Langenderfer, Inc. v. S.E. John-
son Co., 729 F.2d 1050, 1056-58 (6th Cir.), cert. denied, 469 U.S.
1036 (1934) (pricing below marginal or average variable cost pre-
sumed illegal); Transamerica Computer Co., Inc. v. International
Business Machines Corp., 698 F.2d 1377, 1386 (9th Cir.), cert.
denied, 464 U.S. 955 (1983) (pricing above average total costs may
be deemed predatory upon showing of predatory intent); William
Inglis & Sons Baking Co., supra note 8, 668 F.2d at 1041 (9th
Cir.) (plaintiff shows predation by price below average variable
cost); Northeastern Tel. Co. v. American Tel. & Tel. Co., 651 F.2d
76, 87-88 (2d Cir. 1981), cert. denied, 455 U.S. 943 (1982) (some
measure of price below cost); O. Hommel Co. v. Ferro Corp., supra
note 3, 659 F.2d at 352 (3d Cir.) (predatory intent not inferred
from sales at or above average variable cost); International Air
Industries, Inc. v. American Excelsior Co., 517 F.2d 714, 724 (5th
Cir. 1975), cert. denied, 424 U.S. 943 (1976) (price above average
variable cost presumed lawful). Similarly, the Seventh Circuit, be-
fore the instant case, also espoused an analysis of price-below-cost
in determining predatory pricing. See MCI Communications Corp.
v. American Tel. & Tel. Co., 708 F.2d 1081, 1111-31 (7th Cir.),
cert. denied, 464 U.S. 891 (1983).
12 This approach is consistent with Judge Easterbrook’s known
views on the issue. See Easterbrook, Predatory Strategies and
Counterstrategies, supra, 48 U. Chi. L. Rev. at 281 (“any approach
to predation emphasizing below-cost pricing as a device to drive
out rivals is umproductive’’).
only the sales below average total cost (A-19), the record
shows that Rose Acre also persistently sold below the
more rigorous standards of long-run incremental and aver-
age variable or marginal costs.1* Thus the issue here is
not which cost standard'4 but whether the courts may
rely on any cost standard to show harm to competition—
with the court below choosing the most extreme position
and answering that question in the negative.
The Seventh Circuit silently ignored that Rose Acre’s
prices on all eggs sold during the entire fiscal year from
July 1, 1979 to June 30, 1980 were below its average
variable cost for that period. (PExs. 96, 97, 98; Tr. 10/8/87
A.M., 96, 112-113; Tr. 10/13/87 A.M., 22-23). This time
period is far longer than periods of below-cost special pric-
ing other federal courts have held establish Robinson-
Patman liability.15
Plaintiffs’ extensive proof of below-cost pricing under
even the most rigorous analyses employed by the federal
13° PExs. 52-8a, 52-8b, 52-8c, 96, 97, 98; Tr. 10/7/87 A.M.,~75-%1;
Tr. 10/8/87 A.M., 96, 112-113; Tr. 10/13/87 A.M., 22-23, 65-6.
14 Petitioners are not suggesting that this Court address the ques-
tion of the exact measure of cost to be employed in the price-
below-cost analysis. It is unnecessary to do so here and the issue
may best be left to a case by case determination which can re-
spond to the variety of factors inherent in a particular market.
Whatever the cost measurement, as the Seventh Circuit in the
case below noted, this Court has indicated in the Utah Pie and
Matsushita cases, “that the relation between price and cost mat-
ters.” (A-19). See also Cargill, supra note 10, 479 U.S. at 118 n.12.
15 See National Dairy Products Corp. v. Federal Trade Commis-
sion, 412 F.2d 605, 609, 610, 615 (7th Cir. 1969) (26 days). See also
Kelco Disposal, Inc. v. Browning-Ferris Industries, Inc., 845 ¥ .2d
404 (2d Cir. 1988), aff'd on other grounds, __. ~ U.S. ___, 109 5.
Ct. 2909 (1989) (six months); D&S Redi-Mix v. Sierra Redi-Mir
and Contracting Co., 692 F.2d 1245, 1248-49 (9th Cir. 1982) (max-
imum of nine months).
en
- =
courts shows the inappropriateness of the decision below.
The elimination of below-cost pricing analysis by the court
below was the only means by which it could find that
Rose Acre had not injured competition. Absent total aban-
donment of all cost-price tests, plaintiffs’ evidence would
have prevailed under any cost-price measure, even the
stringent test of consistent and prolonged pricing below
average variable cost. Rose Acre sold its eggs below any
of the judicially established cost-price standards, and, after
the decision below, the federal courts need the direction
of this Court as to whether price below any measure of
cost can now ever be considered evidence of predation.
Il.
This Court Should Resolve Whether Eggs And Other
Grocery Commodities With A Limited Shelf Life Are
Exempt From The Robinson-Patman Act.
The decision below warrants review by this Court be-
cause it effectively exempts all commodities with a finite
shelf life from being of “like grade and quality” under
Section 2(a) of the Robinson-Patman Act, though the goods
are physically indistinguishable. (A-23). This analysis re-
verses the statutory burden of proof under Section 2(a)
and thereby reverses the Act’s terms and purposes. The
Fourth Proviso exception to Section 2(a) for the chang-
ing marketability of goods is an affirmative defense to be
proved by a defendant as to the condition of particular
lots of goods which were sold at lower prices allegedly
because they were actually or imminently perishing.'®
16 Section 2(a) carves out certain exceptions for pricing activities
which, upon proper proof, will not be considered discriminatory.
One such exception, the so-called “Fourth Proviso” of the Act,
(Footnote continued on following page)
However, the lower court’s treatment of perishability—
the potential to perish sometime in the future—as creating
a per se exception improperly shifts to plaintiff a burden
of proving that there were not changes in the physical
condition of particular lots of goods that were otherwise
indistinguishable from identical goods produced and sold
simultaneously. Such a clearly erroneous departure from
the language of the Robinson-Patman Act, a statute en-
acted primarily to protect the sale of grocery products,
merits review by this Court.
The Seventh Circuit broadens the district court’s anom-
alous ruling that all ‘the sales made by Rose Acre dur-
ing the relevant period [were] within the Fourth Proviso
of the Robinson-Patman Act” (B-49), i.e., that each egg
sale for five years was the result of actual or imminent
deterioration. Consequently, both opinions below exclude
all eggs (and, by analogy, all goods with a limited shelf
life) from the Robinson-Patman Act. The decisions below
permit even one-hour old eggs—not to mention Rose Acre’s
discriminatorily priced “specials” promised to be filled
with as-yet-unlaid eggs—to be sold at predatory prices to
selected purchasers as a means of lessening competition.
Such an all-encompassing exclusion for an entire commod-
ity is contrary to the statutory terms, reason, and legis-
lative history. The Robinson-Patman Act was clearly in-
16 continued
is that occasional price changes in response to changing market
conditions or the marketability of particular goods may not be
discriminatory. A circumstance wherein the Fourth Proviso excep
tion may apply is where there is the “actual or imminent deteriora-
tion of perishable goods.” 15 U.S.C. § 13(a).
—20—
tended to apply to the pricing of groceries to wholesalers
and retailers.!7
The Robinson-Patman Act proviso exempts only price
changes that occur “from time to time,” but Rose Acre
regularly and persistently granted special discounts, often
guaranteeing special prices months in advance of delivery.
(Tr. 10/8/87 A.M., 78). Imminent deterioration of eggs
played no part in Rose Acre’s guaranteed specials. As
Rose Acre’s Sales Manager, Charles Waltman, testified,
“a guaranteed special means that no matter whether we
have got any eggs or whether we have to pay a dollar
a dozen, we still do this.” (Tr. 10/16/87 A.M., 16; PEx.
103 at 104).
Rose Acre produced no evidence that any specific lots
of eggs were in danger of imminent deterioration, let
alone evidence that for at least five years all “specials”
were imminently deteriorating. The opinions below silently
attempt to avoid this complete failure of proof by revers-
ing the burden of proof and requiring the plaintiffs to
prove a negative, i.e., that none of the eggs sold over
those years was in danger of imminent deterioration. The
Robinson-Patman exemption deals with “‘situations in con-
nection with specific lots of goods”’:'® i.e., detailed evi-
dence that those particular goods are imminently threat-
17 The bill itself, introduced in the House on June 11, 1935 by
Rep. Wright Patman, H.R. 8442, 74th Cong., Ist Sess. (1935), was
sponsored by the United States Wholesale Grocers Association, see
Hearings on H.R. 4995, H.R. 5062 and H.R. 8442 Before the House
Comm. on the Judiciary, 74th Cong., 1st Sess. 17 (1935), and was
drafted by H.B. Teegarden, counsel for the United States Whole-
sale Grocers Association. H.R. 8442, 74th Cong., 1st Sess. 8232
(1935).
18 See Moore v. Mead Service Co., 190 F.2d 540, 541 (10th Cir.
1951), cert. denied, 342 U.S. 902 (1952) (emphasis added).
=
ened with spoilage must be shown in order to take ad-
vantage of this affirmative defense.'9
The Seventh Circuit’s opinion assumes that the “special”
or discriminatory prices resulted from temporary or seéa-
sonal imbalances in supply, because “the chickens don’t
lay to order.” (A-22). That simple biological fact cannot
obscure the record showing that the years of persistent
specially priced sales of millions of eggs to targeted
customers were unrelated to any short-term egg-laying.
First, the pattern of “specials” by Rose Acre did not
reflect any seasonal or temporary variation, but involved
huge quantities from 1978 through 1981 and eventually
none after this suit was filed. In both 1980 and 198] “spe-
cials” amounted to over 35% of all the eggs sold to the
ten targeted customers, 400 or 500% more specials than
sold to other customers. (PEx. 30 at ex. B: 95). Second,
the quantity of eggs Rose Acre sold to a customer re-
mained the same for weeks, regardless of whether the
customer was receiving specials during that period. (Tr.
10/8/87 A.M., 110-11). The “specials” were a means to lure
ten customers from plaintiffs; they certainly were not a
19 See Lombino & Sons, Inc. v. Standard Fruit & Steamship
Co., 1975-2 Trade Cas. (CCH) 4 60,527 (S.D.N.Y. 1975) (bananas).
See also In re American Motor Specialties Co., 55 F.T.C. 1430.
1447 (1959), aff'd, 278 F.2d 225 (2d Cir.), cert. denied. 364 US.
884 (1960); In re D&N Auto Parts Co., 55 F.T.C. 1279, 1301 (1959)
(“the substance of the proviso appears to be that a defense may
be made out in occasional and temporary situations”); Jn re Fruit-
vale Canning Co., 52 F.T.C. 1504, 1514-15 (1956) (finding the de-
fense not supported, because “‘it is clear that respondent granted
favored buyers the advantage of discriminatory prices as a cus-
tomary Ke f normal method of business, not in response to any
averred changing market conditions”). “The changing conditions
proviso” of the Robinson-Patman Act is to deal with “distress mer-
chandise.”” Scher, How Sellers Can Live With The Robinson-
Patman Act, 41 Bus. Law. 533, 542 ( 1986).
ti
- =
way to sell to those favored targeted customers, or to
anyone else, temporary surplus or imminently deterio-
rating eggs. Third, the plaintiffs, like Rose Acre, were
obligated to accept and market all the eggs as and when
laid by the hens. The plaintiffs had to buy “all” the eggs
“that a given farmer produced” or be cut off from reli-
able sources of eggs. (Tr. 10/14/87 A.M., 11). Rose Acre’s
situation with respect to what hens laid was not unique.
The simple fact a commodity has a finite shelf life is
insufficient to remove the commodity’s sales from the
Robinson-Patman Act, a statute expressly enacted to cover
grocery products. Consistent with Judge Easterbrook’s
abhorrence of the Robinson-Patman Act, the Seventh Cir-
cuit shifted the burden of proof on an affirmative, statu-
tory defense (imminent deterioration) so that the exception
now consumes the statute. The court below has parlayed
the reality that eggs, like all agricultural items, are
perishable commodities, into a per se exception for perish-
able goods from the Act. Such a drastic excision should
be addressed by this Court.
Ill.
This Court Should Resolve Whether Price Discrimina-
tion Occurs, As A Matter Of Law, When A Seller
Grants To Select Customers Persistent Special Dis-
counts That Deviate From The Seller’s Uniform Base
Prices.
Rose Acre used the same base prices for all customers,
and, when it changed those base prices, it changed them
for all. As Rose Acre’s Director of Marketing explained,
the base prices changed only three times in the five-year
period, and each time a new pricing letter was sent to
all customers. (Tr. 10/16/87 A.M., 16-17; PEx. 103 at 9).
Those base prices were not long-term commitments but,
—23—
instead, were admittedly not “in effect for any particular
length of time” and were subject to “modification” at
any time. (Tr. 10/6/87 A.M., 146; PEx. 93 at 94). Because
each customer paid the same base price, the so-called
““specials’’ were discriminatory prices—being as much as
60-70% of Rose Acre’s sales in a given year to some fa-
vored customers—not offered to all customers but heavily
concentrated on the ten targeted customers. For exam-
ple, in 1980-1981 the specials represented over 35% of all
eggs Rose Acre sold to the small group of ten targeted
customers and less than 10% of its sales to all others.
(PEx. 95). Thus, the variations in the value of the specials
measured the extent of price discrimination among cus-
tomers.
Rose Acre’s business records documented. through hun-
dreds of thousands of transactions, its persistent discrim-
inatory use of specials with respect to the targeted cus-
tomers. This was analyzed and confirmed by days of
expert testimony.
In dismissing the specials as not being proof of different
or discriminatory prices, Judge Easterbrook relied not
upon the record but upon a hypothetical supposition. He
wrote that one might “suppose”’ as follows:
Suppose in July 1981 Rose Acre offers all of its cus
tomers a price 6 [cents] back of Urner Barry for
truckload quantities of large eggs, and in Januar)
1982 a discount of 8 [cents] for the same quantities.
This is not discrimination but uniformity. But if one
supermarket takes the offer in July 1981 and signs
up for a year, and another takes the offer in January
1982, the prices paid by the two will differ--but with-
out legal price discrimination. No one supposes that a
seller must charge the same price on contracts signed
at different times, or on long-term contracts and spot
sales.
~24—
(A-21) (emphasis added). Thus, Judge Easterbrook “sup-
posed” a situation that did not exist and one about which
the plaintiffs did not complain. His hypothesis was twice
flawed: (1) Rose Acre price letters were not “long term”
agreements, such as “a year,”’ but admittedly were sub-
ject to ‘‘modification’”’ at any time; and (2) the base price
did not vary among customers or depend on when a price
agreement was made. (Tr. 10/6/87 A.M., 146; PEx. 93 at
94; Tr. 10/16/87 A.M., 16-17; PEx. 103 at 9).
Despite the baseless hypothetical or supposition, the
record extensively demonstrated that Rose Acre persis-
tently and discriminatorily departed from its uniform base
prices to grant special lower prices to the ten targeted
customers and did so with eggs that were indistinguish-
able from any other eggs Rose Acre sold.2° No view of
the Robinson-Patman Act can justify holding that, as a
matter of law, petitioners failed to demonstrate any price |
differences or discrimination. The Seventh Circuit’s radical
disregard for the evidence of record mandates review by
this Court.
20 There was no question before the trial judge or jury in the
district court that Rose Acre had committed price discrimination.
Even in its decision granting Rose Acre’s judgment n.o.v., the dis-
trict court did not suggest —s had not established an unre-
butted prima facie case 0
price difference. (B-22-27).
—25--
CONCLUSION
For the foregoing reasons, the petitioners respectfully
request that a writ of certiorari be granted to review the
judgment of the United States Court of Appeals for the
Seventh Circuit.
Respectfully submitted,
Of Counsel: LEE B. McTurRNAN
ALFRED C. FRAWLEY McTURNAN & TURNER
BRANN & ISAACSON 2070 Market Tower
184 Main Street 10 West Market Street
Lewiston, Maine 04240 Indianapolis, Indiana 46204
WaRrREN S. RADLER Counsel of Record and
RIVKIN RADLER DUNNE Attorney for Petitioners
& BAYH A.A. Poultry Farms, Inc.,
30 North LaSalle Street et al.
Suite 4300
Chicago, Illinois 60602
(312) 782-5680
Dated: December 29, 1989
APPENDICES
APPENDIX A
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A-l
In the
United States Court of Appeals
For the Seventh Circuit
No. 88-1426
A.A. PouLTRY Farms, INC., et al.,
Plaintiffs-Appellants,
Vv.
Rose ACRE Farms, INC.,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. IP 81 446 C—James E. Noland, Judge.
ARGUED DecemBer 5, 1988—Decipep Aucust 4, 1989
Before BAUER, Chief Judge, EASTERBROOK, Circuit Judge,
and GRANT, Senior District Judge.*
EASTERBROOK, Circuit Judge. Economists frequently
give agricultural products such as wheat as examples of
rfect competition. Concentration is low and the product
fangible. Anyone who tries to charge more than the going
om loses sales quickly, making the effort unprofitable.
ice closes in on marginal cost and stays there. Sellers
may enter or expand output as much as they please, at
* Hon. Robert A. Grant, of the Northern District of Indiana,
sitting by designation.
A-2
the potential expense of rivals but to the definite benefit
of consumers: the growing producer will be able to sell its
greater supplies only at the going price or less. Growth by
the more efficient producers is an engine of lower prices,
to be applauded.
Rose Acre Farms is a vertically integrated egg producer
and processor. Rose Acre’s chickens practically lay their
eggs on conveyor belts, which carry them away to be graded,
sorted by size, and crated in a continuous operation. The
eggs, in cartons suitable for supermarket shelves, must
be sold quickly: “sell ’em or smell ’em” is the industry
motto. Hens do not always cooperate by laying eggs in
the grades and sizes consumers want at the moment. Un-
integrated processors (firms that pack and ship eggs they
purchase from farmers, called “‘producers”) cope with this
by buying only the grades and sizes they need; integrated
firms that are less mechanized than Rose Acre (and firms
obliged by contract with producers) sell surplus eggs to
“breakers’’—firms that use eggs to make bread and other
finished products. Rose Acre sells its surplus not to break-
ers but to supermarkets, at concessionary prices.
“Specials” compete with the eggs offered by other proc-
essors. Seven of Rose Acre’s rivals filed this suit, contend-
ing that the specials were priced too low, in violation of
the Robinson-Patman amendments to §2(a) of the Clayton
Act, 15 U.S.C. §13(a). Specials go for less than Rose Acre’s
other eggs, which the plaintiffs portray as price discrimi-
nation; the plaintiffs also maintained that Rose Acre sells
the “specials’’ below its cost of production, which they
describe as predatory. A jury agreed, returning a verdict
of $9.3 million in damages, or $27.9 million after trebling.
The district judge granted Rose Acre’s motion for judg-
ment notwithstanding the verdict, 683 F. Supp. 680 (S.D.
Ind. 1988).
Because the jury found a verdict in the processors’
favor, we take the facts and inferences in the light most
favorable to them.
A-3
Rose Acre more than doubled the size of its operation
between 1978 and 1982, borrowing $13 million and install-
ing highly automated production facilities. In 1977 Rose
Acre had 1.5 million laying hens; by 1982 it had 3.4
million, producing a billion eggs per year. This is approx-
imately 1% of national production. Sales are more concen-
trated from regional perspectives. In 1978 Rose Acre proc-
essed 10.4% of all eggs in Indiana; by 1983 that figure
was 23.1%. In a larger region (Ohio, Indiana, Illinois,
lowa, and Michigan), Rose Acre’s share rose from 3.4%
to 8.6%. In 1978 the four largest processors in Indiana
(including Rose Acre) had a share of 20.8%; by 1982 that
figure was 60.9%. (The record does not contain enough
data to allow computation of the Hirfindahl-Hirschmann
Index of concentration, nationally or for any region.)
Although Rose Acre more than doubled in size, national
sales of eggs increased about 1% annually. Rose Acre’s
growth therefore came at other processors’ expense. AlI-
though until 1978 Rose Acre sold almost all of its eggs
within 100 miles of Indianapolis, by 1982 it had cracked
markets as far away as Buffalo. To do this it offered low
prices. Pricing in the egg business is based on the “Urner
Barry index”, a daily compendium of egg prices. Process-
ors bid in relation to that scale—e.g., ‘five cents per dozen
back of [= under] Urner Barry”—so that they may strike
long-term deals in a fluctuating market. A buyer who re-
ceives a bid well under the Urner Barry scale is assured
of a relatively good buy even though the delivered price
may move up or down with the market.
The plaintiff processors squawked about the prices Rose
Acre used to win the business of ten large supermarket
chains. Sometimes Rose Acre prevailed on a single, low
uote. For example, to wrest the business of the southern
ivision of the Fisher-Fazio chain in Ohio away from plain-
tiff Gressell Produce Co., Rose Acre offered large eggs
at 6¢ per dozen back of Urner Barry if Fisher-Fazio would
buy two trailer loads (24,960 dozen eggs per trailer) week-
ly. More frequently, Rose Acre’s prices had two compon-
ents: ordinary deliveries and a promise of “specials”. Rose
A-4
Acre got the business of Fisher-Fazio’s northern division
by offering a “special” price of an extra 4¢ off for one
week each month. Boomsma Produce of Missouri, Inc., lost
the account of Aldi-Noti in Chicago and St. Louis to Rose
Acre’s bid of 8¢ per dozen under Urner Barry for large
eggs, plus “specials” four weeks per year at an additional
4¢ less than the index; in November 1981 Rose Acre
quoted Aldi-Noti a price of 12¢ per dozen below Urner
Barry for all trailer loads in excess of five per week, a
deal Aldi-Noti could accept only by using Rose Acre’s
products in both Chicago and St. Louis—which it did,
freezing out Boomsma. Deals for other supermarket chains
followed a similar pattern. Plaintiffs maintain that Rose
Acre did not offer similar discounts in Indianapolis, its
home territory, and that the specials tapered off after
Rose Acre secured the business of each chain.
Willard F. Mueller, professor of economics at the Uni-
versity of Wisconsin and plaintiffs’ expert witness, testi-
fied that Rose Acre’s pricing strategy started the egg
market rolling toward oligopoly and “materially con-
tributed to a declining price structure” in the business.
Professor Mueller concluded that the prices were dis-
criminatory because Rose Acre gave proportionally more
“specials” to buyers located farther away, although the
transportation costs of delivering to those customers were
higher. Drawing on the work of an accounting expert,
Prof. Mueller also opined that Rose Acre’s prices were
predatory because they were less than its average total
cost, and in 1980 were 2% less than its average variable
cost.
Plaintiffs finally offered evidence of predatory intent.
David Rust, the president of Rose Acre, once paid a call
on Phillip Gressell and said: “We are going to run you
out of the egg business. Your days are numbered.” Lois
Rust, the firm’s treasurer, answered “‘No”’ to the ques-
tion “Does your cost of production have anything to do
with the selling price of your eggs?” She explained that
Rose Acre grants specials to retailers instead of selling
i
4
*
f
ip
A-5
eggs to breakers because “it is the way to win in the
long run.”
Although this evidence impressed the jury, the district
judge granted judgment to Rose Acre. Reversing conclu-
sions he had articulated before and during the trial, the
judge held that the evidence of bad intent could not sup-
port a verdict that was not otherwise justified by objec-
tive economic indicators. That objective information, the
judge believed, was “not sufficient to find actual competi-
tive injury in the egg market. . . . Even the most favor-
able viewing of the evidence in favor of the plaintiffs in-
dicates a healthy, competitive market, marked by the
growth of the plaintiffs and the entry and growth of other
egg processors”. 683 F. Supp. at 687. Evidence that plain-
tiff Hemmelgarn & Sons, Inc., had grown as fast as Rose
Acre particularly impressed the judge, as did the fact that
the gross revenues of the plaintiffs increased from $60
million in 1977 to $92 million in 1983. Entry from other
firms also was impressive:
Companies located in the areas in which Rose Acre
sold its eggs which entered the market or expanded
significantly include Wabash Valley Produce which
grew from 2 million to 3.3 million layers; Midwest
Poultry Services which yrew from under 1 million to
2.25 million layers by 1983; Croton Egg Farm entered
the market and grew to 2.8 million layers by 1983;
Daylay Egg Farm also entered the market and grew
to 1.2 million layers by 1983. Additionally, Creighton
Brothers and Weaver Brothers, both located in Indi-
ana, expanded operations and grew during this period
of time.
Ibid. Plaintiffs contest the district court’s emphasis on the
growth of their revenues, pointing out that market prices
drive revenues. They offer this table:
A-6
Percent Change in Cases of Eggs Sold
(1978-1982)
Rose Acre 217.0%
Mendelson Egg -3.4%
Boomsma Produce 7.0%
Peter Produce 3.0%
Hemmelgarn & Sons 62.0%
A.A. Poultry Farms -14.0%
Gressel Produce 1.5%
To which they add: “Given the inelastic demand for eggs
and Rose Acre’s dramatic expansion, the plaintiffs are the
fortunate survivors.”
After concluding that the egg market is competitive, the
district court observed that the evidence could not support
an inference of predatory intent—not only because of the
vigorous competition but also because the evidence did
not show that Rose Acre sold eggs for less than the ap-
propriate measure of costs, 683 F. Supp. at 688-89. When
denying summary judgment the district court had said
that prices below long-run variable costs could be preda-
tory; now it held that the plaintiffs had not produced ac-
ceptable evidence to establish what Rose Acre’s long-run
incremental cost was, rendering Prof. Mueller’s conclusions
speculative. 683 F. Supp. at 689-91. That led straight to
judgment for Rose Acre.
Il
Section 2(a) of the Clayton Act, as amended by the
Robinson-Patman Act, makes it unlawful “to discriminate
in price between different purchasers of commodities of
like grade and quality”, unless certain exclusions and de-
fenses apply, “where the effect of such discrimination may
be substantially to lessen competition or tend to create
a monopoly”. When the discrimination has primary-line
effects—that is, in the same industry as the person grant-
ing the discriminatory prices—the claim has much in com-
mon with a contention that the defendant engaged in
A-7
predatory pricing in violation of §2 of the Sherman Act,
15 U.S.C. §2. In either case, the gravamen is that the
aggressor sold goods for too little money, hoping to crip-
ple or discipline rivals so that it might sell its wares for
a monopoly price later, recouping the losses and adding
a hefty profit, to the detriment of consumers. Under a
system of notice pleading, a party may prevail by estab-
lishing that its legal rights have been violated, whether
or not it names the right statute. Because this case was
litigated as if the complaint had named §2 of the Sher-
man Act in addition to §2(a) of the Clayton Act, and the
appeal has been briefed from the same perspective, we
start with the question whether the plaintiffs succeed
under the Sherman Act’s standard.
Consumers, for whose benefit the antitrust laws are de-
signed, welcome low prices but not monopoly prices. Con-
tentions that firms practice predatory pricing—the se-
quence low-price-now-high-price-later—accordingly create
difficult problems for courts. If a rival files suit during
the “low price” period, how can a court tell whether the
price is low because the defendant is an efficient producer
driving down costs (or just driving price down to cost)
as opposed to a predator? A price “too low”’ for an in-
efficient rival may be just right from consumers’ perspec-
tive, showing only that the defendant’s costs of produc-
tion are lower than those of the plaintiff—for which it
should receive a reward in the market rather than a
penalty in the courthouse. So the plaintiff's observation
that it is losing business to a rival that has slashed prices
is consistent with both aggressive competition and preda-
tory pricing. How to tell them apart?
One way is to find out whether the defendant’s prices
exceed its costs. If the price exceeds cost, then it reflects
beneficial aggressive competition. If the price is less than
cost, then it may reflect a sacrifice in the hope of sup-
pressing competition and collecting a monopoly profit
later. Much of the recent academic writing on predatory
pricing tackles the subject from this perspective, and
many recent cases in and out of this circuit struggle with
A-8
the appropriate price-cost relation. Chillicothe Sand &
Gravel Co. v. Martin Marietta Corp., 615 F.2d 427, 431-32
(7th Cir. 1980); MCI Communications Corp. v. AT&T, 708
F.2d 1081, 1114-23 (7th Cir. 1983); Phillip Areeda & Donald
F. Turner, Predatory Pricing and Related Practices Un-
der Section 2 of the Sherman Act, 88 Harv. L. Rev. 697
(1975); Frederic M. Scherer, Predatory Pricing and the
Sherman Act: A Comment, 89 Harv. L. Rev. 869 (1976);
Oliver E. Williamson, Predatory Pricing: A Strategic and
Welfare Analysis, 87 Yale L.J. 284 (1977).
Trying to infer (or refute) predatory conduct from the
relation between price and cost is difficult business. Often
a price below cost reflects only the sacrifice necessary to
establish a presence in a competitive market (for example,
new magazines lose money for years as they try to in-
crease circulation and attract advertising revenue, with-
out creating the tiniest risk of monopoly), or it could re-
flect the obsolescence of the product and the fact that a
firm planning to leave the market does not try to cover
its fully-allocated costs. See, e.g., Buffalo Courier-Express,
Inc. v. Buffalo Evening News, Inc., 601 F.2d 48 (2d Cir.
1979) (Friendly, J.) (promotional discount); Pacific Engi-
neering & Production Co. v. Kerr-McGee Corp., 551 F.2d
790 (10th Cir. 1977) (sales below average total cost in de-
clining industry). Measuring costs creates additional prob-
lems. Are advertising and research costs expensed or
capitalized? How does one allocate the cost of activities
that have joint products? Agencies engaged in ratemaking
struggle with these problems for years, even decades,
without producing clear answers. If we could measure
costs, what would be the right benchmark? Short-run vari-
able cost? Long-run variable cost? Average total cost? Any
of these (and there are more measures) might be best in
a given case, depending on the strategy the aggressor has
selected and the length of time it will take to succeed.
Efforts to measure Rose Acre’s cost of production and
contrast it with price made this a complex case.
A second approach to separating aggressive competition
from predation concentrates on the defendant’s intent. If
A-9
a seller plans to drive out competition by fowl means, then
the court infers that its price is unlawfully low now and
will be too high later. Frequently courts use intent to re-
solve ambiguities in interpreting price-cost data; some-
times, though, courts assume that bad intent is unlawful
and use price-cost data to infer it, e.g., McGahee v. North-
ern Propane Gas Co., 858 F.2d 1487, 1496 (11th Cir. 1988).
“Some courts almost seem to overlook the fact that preda-
tory pricing is the evil, and write sometimes as if the con-
duct is important only because it is evidence of the firm’s
evil intent.”’ Phillip E. Areeda & Herbert Hovenkamp,
Antitrust Law $714.2b n.5 (1988 Supp.). Still other courts
have held that intent is irrelevant in predatory pricing
cases, e.g., Barry Wright Corp. v. ITT Grinnell Corp.,
724 F.2d 227, 232 (1st Cir. 1983). We shall return to in-
tent.
The third approach looks at the back end, the “high
price later” part of the predatory sequence. Predatory
prices are an investment in a future monopoly, a sacrifice
of today’s profits for tomorrow’s. The investment must
be recouped. If a monopoly price later is impossible, then
the sequence is unprofitable and we may infer that the
low price now is not predatory. More importantly, if there
can be no “later” in which recoupment could occur, then
the consumer is an unambiguous beneficiary even if the
current price is less than the cost of production. Price
less than cost today, followed by the competitive price
tomorrow, bestows a gift on consumers. Because antitrust
laws are designed for the benefit of consumers, not com-
petitors, see Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,
429 U.S. 477, 488 (1977), Schachar v. American Academy
of Ophthalmology, Inc., 870 F.2d 397, 399-400 (7th Cir.
1989), a gift of this kind is not actionable.
Contemporary cases strongly favor using this third ap-
proach whenever possible. The two most recent predatory
pricing cases in the Supreme Court, Cargill, Inc. v. Mon-
fort of Colorado, Inc., 479 U.S. 104 (1986), and Matsushita
Electric Industrial Co. v. Zenith Radio Corp., 475 U.S.
574 (1986), employ it, each holding that recoupment would
A-10
be so unlikely that antitrust inquiry could not be justi-
fied. So too with our own most recent decision on point,
Indiana Grocery, Inc. v. Super Valu Stores, Inc.. 864 F.2d
1409 (7th Cir. 1989). See also Paul L. Joskow & Alvin K.
Klevorick, A Framework for Analyzing Predatory Pric-
ing Policy, 89 Yale L.J. 213 (1979), recommending the use
of this filter. It is much easier to determine from the
structure of the market that recoupment is imprcbable
than it is to find the cost a particular producer experi-
ences in the short, middle, or long run (whichever proves
pertinent). Market structure offers a way to cut the in-
quiry off at the pass, to avoid the imponderable questions
that have made antitrust cases among the most drawn-
out and expensive types of litigation. Only if market struc-
ture makes recoupment feasible need a court inquire into
the relation between price and cost.
Making likelihood of recoupment the initial hurdle avoids
not only questions of cost but also questions of intent,
for if a price below cost is lawful when it cannot lead to
monopoly, then the defendant’s state of mind becomes ir-
relevant. Sacrificing profits today benefits consumers; that
the defendant knows it is sacrificing profits does not
reduce this benefit. Suppose we assume that every sacri-
fice of profit (meaning, roughly, sales below cost) is an
attempt to engage in predatory pricing. If the attempt
fails, consumers are better off, and the aggressor suffers
an automatic penalty. It surrenders the profits it could
have made by charging the higher market price. Because
unsuccessful predation is unprofitable, it is bootless for
the legal system to intervene, see Matsushita, 475 U.S.
at 595; self-deterring conduct is not apt to be repeated,
and if it is the consumer will receive still another boon.
Reference to intent could not help the court determine
whether recoupment is possible, and unless recoupment
lies in store even the most vicious intent is harmless to
the competitive system.
Several other compelling reasons support the conclusion
that intent plays no useful role in this kind of litigation.
Firms “intend” to do all the business they can, to crush
sn Say is GAL sme
A-11
their rivals if they can. “ ‘[IJntent to harm’ without more
offers too vague a standard in a world where executives
may think no further than ‘Let’s get more business,’ ”’
Barry Wright, 724 F.2d at 232. Rivalry is harsh, and con-
sumers gain the most when firms slash costs to the bone
and pare price down to cost, all in pursuit of more busi-
ness. Few firms cut price unaware of what they are doing:
price reductions are carried out in pursuit of sales, at
others’ expense. Entrepreneurs who work hardest to cut
their prices will do the most damage to their rivals, and
they will see good in it. You cannot be a sensible busi-
ness executive without understanding the link among
prices, your firm’s success, and other firms’ distress. If
courts use the vigorous, nasty pursuit of sales as evidence
of a forbidden “‘intent’’, they run the risk of penalizing
the motive forces of competition. Indiana Grocery, 64
F.2d at 1413; Ball Memorial Hospital, Inc. v. Mutual
Hospital Insurance, Inc., 784 F.2d 1325, 1338 (7th Cir.
1986).
Almost all evidence bearing on ‘intent’? tends to show
both greed-driven desire to succeed and glee at a rival’s
predicament. Take, for example, the statement David Rust
made to Phillip Gressell: ‘““‘We are going to run you out
of the egg business. Your days are numbered.” Undoubt-
edly Rust wanted to leave Gressell scratching in the dust,
but drive to succeed lies at the core of a rivalrous econ-
omy. Firms need not like their competitors; they need
not cheer them on to success; a desire to extinguish one’s
rivals is entirely consistent with, often is the motive
behind, competition. Or take Lois Rust’s statement that
Rose Acre’s prices were unrelated to its costs. Plaintiffs
treat this as a smoking gun. Far from it, such a state-
ment reveals Rose Acre to be a price taker. In perfect
competition, firms must sell at the going price, no matter
what their own costs are. High costs do not translate to
the ability to collect a high price; someone else will sell
for less. Monopolists set price by reference to their costs
(to be precise, they set quantity where marginal cost
equals marginal revenue, a measure reflecting the shape
A-12
of the market’s demand curve, and charge the price the
market will bear at that quantity); competitors set price
by reference to the market. A predator, too, is highly sen-
sitive to its costs of doing business; it calculates how much
sacrifice it needs to make (and could bear), and uses that
as the basis of its prices. So the statement that Rose Acre
does not pay attention to its own costs when setting price
reveals that the firm was acting as a competitor rather
than a monopolist. Yet statements of this sort readily may
be misunderstood by lawyers and jurors, whose expertise
lies in fields other than economics.
Intent does not help to separate competition from at-
tempted monopolization and invites juries to penalize hard
competition. It also complicates litigation. Lawyers rum-
mage through business records seeking to discover tidbits
that will sound impressive (or aggressive) when read to
a jury. Traipsing through the warehouses of business in
search of misleading evidence both increases the costs of
litigation and reduces the accuracy of decisions. ae
intent away brings the real economic questions ‘4 the fore
at the same time as it streamlines antitrust tiention. Al-
though reference to intent in principle could help dis-
ambiguate bits of economic evidence in rare cases, MC]
v. AT&T, 708 F.2d at 1123 n.59, the cost (in money and
error) of searching for these rare cases is too high—in
large measure because the evidence offered to prove in-
tent will be even more ambiguous than the economic data
it seeks to illuminate. Professors Areeda and Hovenkamp
therefore suggest that intent be removed as a subject in
predatory pricing cases, see Phillip E. Areeda, 7 Antitrust
Law $1506 (1986); Areeda & Hovenkamp, Antitrust Law
$714.2 (1988 Supp.), and we are persuaded that this is the
right approach. None of our earlier predatory-pricing cases
founds liability on the basis of intent, so the subject is
open to full consideration. We have previously removed
intent as a basis of liability in other parts of antitrust
law, e.g., Schachar, 870 F.2d at 400 (intent without effect
may not be the basis of lability in a §1 case); Olympia
Equipment Leasing Co. v. Western Union Telegraph Co.,
A-13
797 F.2d 370, 379-80 (7th Cir. 1986) (liability under §2 for
abuse of monopoly power stems from anti-competitive ef-
fects and not intent); Ball Memorial, 784 F.2d at 133-40.
Following the First Circuit’s decision in Barry Wright,
we now hold that intent is not a basis of-liability (or a
ground for inferring the existence of such a basis) in a
predatory pricing case under the Sherman Act. We re-
spectfully disagree with the Eleventh Circuit’s opinion in
McGahee and occasional, similar, decisions elsewhere, e.¢.,
William Inglis & Sons Baking Co. v. ITT Continentai
Baking Co., 668 F.2d 1014, 1027-28 (9th Cir. 1981).
Rose Acre could not have recouped a predatory invest-
ment in the egg business. Plaintiffs’ economic expert wit-
ness testified that prices were falling, and as in Matsu-
shita could not have been expected to rise—at least not
because of what Rose Acre did. Throughout 1978-82, other
firms were entering the business or expanding as fast as
Rose Acre. “The success of any predatory scheme de-
pends on maintaining monopoly power for long enough
both to recoup the predator’s losses and to harvest some
additional gain.”’ Matsushita, 475 U.S. at 589 (emphasis
in original). An expanding firm in a stagnant market in-
evitably puts downward pressure on prices, the opposite
of the concern underlying the Sherman Act. Persistent
entry and expansion by other firms at the same time en-
sures that recoupment cannot occur. Monopoly pricing
comes from reductions in output, as consumers bid for the
remaining supply. NCAA v. University of Oklahoma, 46%
U.S. 85, 103-08 (1984); Broadcast Music, Inc. v. CBS, Inc.,
441 U.S. 1, 19-20 (1979); Indiana Grocery, 864 F.2d at
1413-14; Premier Electrical Construction Co. v. National
Electrical Contractors Ass’n, Inc., 814 F.2d 358, 368-71
(7th Cir. 1987). Try as it might, Rose Acre did nothing
to stem the inflow of productive capacity. Even the plain-
tiffs grew, at an average rate exceeding the national mar-
ket’s 1% per annum.
Market structure, too, made recoupment impossible. Egg
production is unconcentrated. Egg processing is a little
more so, but Rose Acre’s 1% share on a national basis
A-14
hardly gave it the power to raise price. Plaintiffs observe
that the four-firm concentration ratio in Indiana was about
64% in 1983, but Indiana is not a relevant market. We
know that Rose Acre sold eggs in Buffalo, more than 500 ~
miles away, and that Boomsma, with its principal facilities
in Iowa, sold in Ohio. Any given customer apparently
could turn to processors within 500 miles as sources of
supply. ‘A market is the set of sellers to which a set of
buyers can turn for supplies at existing or slightly higher
prices.” FTC v. Elders Grain, Inc., 868 F.2d 901, 907 (7th
Cir. 1989). Concentration therefore should be measured
from customers’ perspectives, to find out whether one
firm’s reduction in output would induce the customer to
pay more. Boeing may be the only manufacturer of air-
frames in Renton, Washington, and IBM the only manu-
facturer of computers in Armonk, New York, but a cus-
tomer in either place would not face a monopolist. Plain-
tiffs did not compute the concentration or HHI ratios from
any customer’s point of view. Every indication in the
record, though, suggests that each of the ten supermarket
chains had and has ample potential sources of a:
Cases frequently say that as a matter of law single-firm
shares of 30% or less cannot establish market power. E.g.,
Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S.
2, 26 (1984); Times-Picayune Publishing Co. v. United
States, 345 U.S. 594, 612-13 (1953); United States v. Alcoa,
148 F.2d 416, 424 (2d Cir. 1945) (one-third insufficient; dic-
tum); Nifty Foods Corp. v. Great Atlantic & Pacific Tea
Co., 614 F.2d 832, 841 (2d Cir. 1980) (one-third insuffi-
cient). Cf. Ball Memorial Hospital, 784 F.2d at 1334-37
(even shares exceeding two-thirds do not confer power
over price if entry is easy). None of the customers was
facing a seller with close to a third of the market, and
none faced a serious prospect of monopoly prices tomorrow
in exchange for cheap eggs today.
Plaintiffs hint darkly that after Rose Acre secured a
new supermarket chain, it cut back on the number of
“specials” offered, thus raising price. So long as the plain-
tiffs and other processors continue operating, however,
A-15
any attempt by Rose Acre to raise price creates fresh
opportunities for its rivals—and for the other firms that
have been flocking to the business. Supermarkets seem
happy with Rose Acre; none filed suit or testified on be-
half of the plaintiffs. As we emphasized in Indiana
Grocery and Ball Memorial Hospital, courts should treat
with great skepticism complaints by competitors who are
injured by the low prices that customers adore, when the
customers are content. Our review of the record leads us
to agree with the district court that no rational jury could
have found that recoupment took place, could have taken
place, or conceivably could take place in the future. To
the contrary, the overwhelming impression left by this rec-
ord is that Rose Acre beat its rivals to the punch in auto-
mating production and used its lower costs to take business
away from them. New entrants with modern technology
have flourished; stodgy firms have stagnated. This is what
competition is all about, and to penalize it in the name
of antitrust would do a great disservice to consumers.
To conclude that Rose Acre did not engage in predatory
pricing is not necessarily to absolve it under the Robin-
son-Patman Act. Despite the language of that statute,
penalizing primary-line discrimination ‘‘where the effect
of such discrimination may be substantially to lessen com-
petition or tend to create a monopoly”, the Supreme
Court held in Utah Pie Co. v. Continental Baking Co.,
386 U.S. 685 (1967), that price discrimination in an oligopo-
listic market contributing to the erosion of price levels
may violate the statute. Scholars have cogently argued
that Utah Pie employed the Robinson-Patman Act to con-
demn the process by which competition creeps into olli-
gopolistic markets and undercuts excessive prices. See,
e.g., Richard A. Posner, The Robinson-Patman Act: Fed-
eral Regulation of Price Differences 12-15, 38 (1976); Wara
S. Bowman, Restraint of Trade by the Supreme Court:
The Utah Pie Case, 77 Yale L.J. 70 (1967). Cf. United
States Department of Justice, Report on the Robinson-
A-16
Patman Act (1977) (expressing doubt about the benefits of
the Robinson-Patman Act as a whole); Kenneth G. Elzinga
& Thomas F. Hogarty, Utah Pie and the Consequences of
Robinson-Patman, 21 J.L. & Econ. 427 (1978) (tracing the
demise of Utah Pie Co. despite shelter from competition).
Nary a voice has been heard in support of Utah Pie
in years. The universal academic disdain for that case,
coupled with the lack of recent reaffirmation by the Su-
preme Court, has led several courts of appeals to con-
clude that the standard of primary-line liability under the
Robinson-Patman Act should-be the same as that under
§2 of the Sherman Act, e.g., Henry v. Chloride, Inc., 809
F.2d 1334, 1345 (8th Cir. 1987); D.E. Rogers Associates,
Inc. v. Gardner-Denver Co., 718 F.2d 1431, 1439 (6th Cir.
1983); Janich Brothers, Inc. v. American Distilling Co.,
570 F.2d 848, 855 (9th Cir. 1977), a conclusion professors
Areeda, Turner, and Hovenkamp endorse. See Phillip
Areeda & Donald F. Turner, 3 Antitrust Law {720c (1978);
Areeda & Hovenkamp at 4720’ (collecting cases at p. 573
n.1). Courts and commentators give a reason and an ex-
cuse. The reason is that if judges employ the best feasi-
ble test for predatory pricing in §2 cases, it is mischievous
to use a different (necessarily inferior) test under the
Robinson-Patman Act. (If the courts don’t use the right
approach under the Sherman Act, this approach continues,
then they should devise a better one rather than use dif-
ferent tests under different statutes). The excuse is that
the Robinson-Patman Act prohibits only price discrimina-
tion that “may .. . substantially . . . lessen competition
or tend to create a monopoly’, which under modern cases
refers to consumers’ welfare, not producers’ comfort. An
excuse it is, however, because Utah Pie took a different
view of things.
Widespread civil disobedience in the judiciary in response
to Utah Pie parallels the response to United States v.
Arnold, Schwinn & Co., 388 U.S. 365 (1967), another
almost friend-less antitrust decision from the same Term
of Court. The substantial ingenuity devoted to getting
‘round Schwinn was one of the factors contributing to its
A-17
demise. See Continental T.V., Inc. v. GTE Sylvania Inc.,
433 U.S. 36, 48 n.14 (1977) (overruling Schwinn). Although
Schwinn bit the dust, the Court has yet to revisit Utah
Pie. One could say that in the intervening years the Su-
preme Court has repeatedly said that, whenever possible,
standards under the Robinson-Patman Act should be con-
formed to standards under other antitrust laws. E.g.,
Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69,
80 & n.13 (1979); United States v. United States Gypsum
Co., 488 U.S. 422, 457-59 (1978). For the reasons we can-
vassed in Part II of this opinion, ‘‘ordinary’’ antitrust
standards suggest giving Rose Acre a medal rather than
requiring it to pay $28 million in damages, which ex-
ceeds its net worth. But there is a difference between
an interpretive approach, a means of resolving ambiguities
(“When in doubt, read the Robinson-Patman Act to pro-
tect consumers’ rather than producers’ welfare”’), and au-
thorization to disregard cases that have laid down rules.
No case since Utah Pie questions its holding, as opposed
to its outlook. Inferior federal courts, in order to provide
equal justice under law, must apply the holdings of cases
still on the books. Rodriguez de Quijas v. Shearson/Amer-
ican Express, Inc., 109 S. Ct. 1917, 1921-22 (1989); Thur-
ston Motor Lines, Inc. v. Jordan K. Rand, Ltd., 460 U.S.
533 (1983). Sometimes the imminent demise Of a prece-
dent may be plain, as when it rests wholly on an opinion
since overruled, and in such cases an inferior court may
apply today’s law sure that the empty shell will break
under the slightest pressure. .g., Limbach v. Hooven &
Allison Co., 466 U.S. 353 (1984); United States v. Burke,
781 F.2d 1234, 1239 n.2 (7th Cir. 1985); United States ex
rel. Spurlark v. Wolff, 699 F.2d 354, 357-61 (7th Cir. 1983)
(en banc); Norris v. United States, 687 F.2d 899, 902-03
(7th Cir. 1982). When the case stands unquestioned, how-
ever, a belief that the Court would not reach the same
decision today if the question were open anew is not a
basis for disregarding the law on the books.
Separating a case that is dead but unburied from a case
that is living on borrowed time is hard yet important.
A-18
Many’s the time the Supreme Court says, using one for-
mula or another: “We might not adopt this interpretation
today, but we will not overrule it either.’’ Antitrust law
has its share. E.g., Flood v. Kuhn, 407 U.S. 258 (1972)
(reaffirming two earlier holdings that baseball is not “‘in-
terstate commerce” and so is not covered by the antitrust
laws); Square D Co. v. Niagara Frontier Tariff Bureau,
Inc., 476 U.S. 409 (1986) (declining to discard the 40-year-
old ‘filed rate doctrine’). At the same time, antitrust doc-
trines equal in pedigree and antiquity have been jetti-
soned. E.g., Copperweld Corp. v. Independence Tube
Corp., 467 U.S. 752 (1984) (overruling the 40-year-old in-
tercorporate conspiracy doctrine); Sylvania (overruling
Schwinn). It is presumptuous—more, it produces uncer-
tain and unequal application of the law—for an inferior
court to act on 2 belief that a given decision will be among
the handful that the Supreme Court overrules or signifi-
cantly limits.
A court could of course “reconcile” the Robinson-Patman
and Sherman Acts the way the Eleventh Circuit recently
did, holding in McGahee, 858 F.2d at 1493 n.9, that the
two have the same meaning and then conforming the
Sherman Act’s standard to that of the Robinson-Patman
Act, id. at 1496-1501. That approach, however, drives the
definition of predatory pricing under the Sherman Act
away from Matsushita and Cargill just as surely as the
other kind of reconciliation slights Utah Pie. Sherman Act
cases should be approached as we have done in Part I];
Robinson-Patman cases, for now at least, follow the ap-
proach of Utah Pie.
Utah Pie holds that the Robinson-Patman Act condemns
at least some primary-line price discrimination that the
Sherman Act permits. Just as we may not properly in-
ter that case, so we ought not give it a crabbed reading
in order to heave out the rear door what we welcomed
in the front. The frozen pie market, the subject of Utah
Pie, was more concentrated than the egg business, but
it would be unprincipled to say that the level of concen-
tration in Utah Pie is the lowest sufficient under the Rob-
E
{
A-19
inson-Patman Act, especially when the Court described
the frozen pie market as “highly competitive’, 386 U.S.
at 703. Moreover, Utah Pie, like other Robinson-Patman
cases before it, recited that “predatory intent’? coupled
with “unreasonably low prices” may be the basis of liabil-
ity, 386 U.S. at 696 n.12 (citing cases), so our conclusion
that resort to intent under §2 of the Sherman Act creates
substantial prospect of injury to competition and needless-
ly complicates litigation does not support a judgment in
this court taking intent outside the pale of Robinson-Pat-
man litigation. Utah Pie held that the firm taking the lead
in reducing prices may be liable on account of a “‘drastical-
ly declining price structure” in a “highly competitive”
market. 386 U.S. at 703. Antithetical as the notion of lia-
bility for vigorous competition leading to low prices is to
contemporary antitrust policy, our job is application.
The egg market is highly competitive, and the jury
could have believed that Rose Acre’s pricing contributed
to a declining price structure, causing its rivals injury (lost
sales) as a result. The evidence of ‘‘intent”’ in this case
does not differ in kind from the sort in other Robinson-
Patman cases: it shows that the defendant wanted to grab
as much business as it could and was not picky about how.
Utah Pie said that “actual intent to injure another com-
petitor’, 386 U.S. at 702-03 1..14, would suffice, without
remarking on the fact that intent to do all the business
you can and intent to take business away from, even
crush, rivals are two sides of the same coin. Although a
few 1 2ferences in Utah Pie, e.g., 386 U.S. at 701; cf. Mat-
sushita, 475 U.S. at 584-85 n.8, imply that the relation
between price and cost matters, the Court had in mind
a measure of average total cost rather than of variable
or marginal costs, 386 U.S. at 698 (referring to direct cost
plus allocated overhead), and the jury in this case would
have been entitled to conclude that Rose Acre sold some
of its eggs, some of the time, for less than average total
cost.
This drives us almost to the point of reversing the dis-
trict court—almost, but not quite. An enduringly com-
A-20
petitive structure might offer Rose Acre safe harbor, see
Dean Milk Co. v. FTC, 395 F.2d 696 (7th Cir. 1968). We
needn’t say because one more ingredient is missing: price
discrimination, as the Robinson-Patman Act uses that
term. Without it plaintiffs’ case won’t fly, as they lose
a a predatory pricing claim for reasons we have
covered.
Section 2(a) says “price discrimination’’ but means “price
difference”. FTC v. Anheuser-Busch, Inc., 363 U.S. 536,
549 (1960). Economic (as opposed to legal) price discrimina-
tion occurs when a firm sells products at different price-
cost ratios. George J. Stigler, The Theory of Price 210
& n.13 (4th ed. 1987). A seller that charges all of its cus-
tomers the same price probably is engaged in economic
price discrimination, because the costs of supplying the
goods vary with distance. So if Rose Acre charged cus-
tomers in Indianapolis and Buffalo the same price, it was
discriminating in favor of the supermarket in Buffalo by
absorbing freight. But under the Robinson-Patman Act,
a firm is entitled to charge the same price to everyone
even though its costs differ. Indeed, price differences that
follow cost differences are treated as (legal) price discrimi-
nation and must be justified, see the first proviso to §2(a).
This puts a big hole in plaintiffs’ case, because Professor
Mueller testified that Rose Acre engaged in three kinds
of price discrimination, of which the first was charging
the same price to customers in different cities. Economic
price discrimination this undoubtedly was; legal price dis-
crimination it just as surely was not. Frederick M. Rowe,
Price Discrimination Under the Robinson-Patman Act
87-99 (1962).
Dr. Mueller testified that Rose Acre engaged in two
other kinds of price discrimination: it gave different num-
bers of ‘‘specials” to different customers, and it charged
different prices (meaning different discounts off the Urner
Barry index) to different customers. Both of these proposi-
tions are superficially true. Recall the evidence about sales
to Fisher-Fazio and Aldi-Noti. Rose Acre offered these
two chains different numbers of specials per year and dif-
A-21
ferent discounts off the Urner Barry index. Complications
set in, though, once we introduce two other features: tim-
ing and net prices.
Start with timing. Suppose in July 1981 Rose Acre of-
fers all of its customers a price 6¢ back of Urner Barry
for truckload quantities of large eggs, and in January 1982
a discount of 8¢ for the same quantities. This is not dis-
crimination but uniformity. But if one supermarket takes
the offer in July 1981 and signs up for a year, and another
takes the offer in January 1982, the prices paid by the
two will differ—but without legal price discrimination. No
one supposes that a seller must charge the same price
on contracts signed at different times, or on long-term
contracts and spot sales. See Rowe, Price Discrimination
Under the Robinson-Patman Act at 50. Whether Rose
Acre engaged in price discrimination as the Robinson-
Patman Act uses that term depends on whether it charged
the same price to customers at the same time. Texas Gulf
Sulphur Co. v. J.R. Simplot Co., 418 F.2d 793, 806 (9th
Cir. 1969). Prof. Mueller did not address that question.
The only evidence we could find on the subject suggested
that at any given moment Rose Acre was offering the
same terms to anyone who then signed on as a customer.
Next consider the computation of the price each cus-
tomer paid. Plaintiffs, through Dr. Mueller, maintained
that the principal kind of discrimination was between
Rose Acre’s regular prices and its “specials”. One week
Rose Acre would sell large eggs for 6¢ back of Urner
Barry, and the next week for 10¢ under the index. Most
of Mueller’s time on the stand was devoted to detailing
differences in the number of weeks for which different
customers were eligible for “specials’’.
No case of which we are aware holds, however, that
fluctuations over time to the same customer are “price
discrimination” within the meaning of the Robinson-Pat-
man Act. Consider two contracts: Rose Acre agrees to
sell the first supermarket 100% of its needs for 8¢ under
Urner Barry, and the second supermarket 67% of its re-
quirements for 6¢ under Urner Barry and the other 33%
A-22
for 12¢ back of the index. Plaintiffs, through Dr. Mueller,
treat this as price discrimination twice over: first the base
prices differ, and then the number of “specials” differs.
Yet the two supermarkets are getting the identical price:
8¢ under the index for 100% of their eggs. Selling a chain
100% of its requirements at 80¢/dozen is the same as fur-
nishing 80% of the requirements at $1.00/dozen and giv-
ing it the other 20% for “free”. Whether price discrimi-
nation has occurred depends, therefore, on the price after
all discounts, specials, and so on. See Fruitvale Canning
Co., 52 F.T.C. 1504, 1520 (1956); Julian O. von Kalinow-
ski, 4 Antitrust Laws and Trade Regulation §27.03(2]
(1988 ed.) (collecting sources).
Asked at trial whether he had computed the mean price
paid by customers after blending in the specials, Dr.
Mueller said no. He computed the percentage of eggs sold
to a given customer at any kind of “‘special’’ price, but
not the blended price paid. Asked at oral argument whether
it would be possible to whip up the blended price from
the record, counsel for the plaintiffs said only that Rose
Acre’s pricing information was there—in carton upon car-
ton full of forms. Plaintiffs did not try to use this infor-
mation; the jury did not have it; we could not derive it
without Herculean labors.
Especially not when §2(a) reaches only discrimination
in the price of goods of “like grade and quality’. “Spe-
cials’’ were not necessarily the same grade and quality
as Rose Acre’s other sales. Integrated producer-processors
have a problem that other processors do not necessarily
face: the chickens don’t lay to order. Marcus Rust, another
of the family members responsible for running Rose Acre,
testified without contradiction that “we could not control
the size of the eggs that the chickens laid.... When you
are on an in-line operation you get what the chicken pro-
duces.’”’ What customers want at the moment may be
something else again. Rose Acres crates the eggs almost
as soon as they are laid, then stores them in coolers ’til
customers want that size and grade. If too much of one size
and grade accumulates, Rose Acre could sell to “breakers”
A-23
only by taking the eggs out of the cartons, at extra cost,
and shipping in bulk. The alternative is to sell at special
prices. Rose Acre “guaranteed”’ specials to customers, but
it chose the timing of the specials and the eggs delivered,
with an eye to reducing its overstock. Although “‘special”’
eggs as delivered may be physically indistinguishable to
the buyer, they are not fundamentally the same good, for
the same reason a seat on the 6:90 a.m. flight from Chi-
cago to New York is not the same as a seat on the 5:00
p.m. flight, and a seat on the 5:00 p.m. flight reserved
two weeks in advance is not the same as a seat on that
flight for which the passenger had to stand by. Professor
Mueller needed to account for the fact that some, perhaps
most, of the specials were not “like” eggs sold on long-
term contract; he did not.
Proving price discrimination was plaintiffs’ burden, yet
they introduced only poultry evidence. The closest they
came was in Exhibit 61, which summarizes differences in
the value of the discounts different customers received—
and fails because it does not take into account differences
in the base price from which the discounts were calcu-
lated. Exhibits (such as 52-8-C) that average prices to
given customers over a year ignore the specials; the few
efforts to compute average benefits of specials disregard
the base prices (and the fact that the base contracts may
have been entered into at different times). Professor
Mueller conceded on cross-examination that the average
discount given to any of the ten chains about which plain-
tiffs are concerned departed by no more than 0.8% from
the average discount to Rose Acre’s customers as a group,
so small variations in the base price easily could wipe out
the differences.
We recognize that Rose Acre did not keep its records
in a way that conduces to finding average delivered prices,
and that putting together the necessary information would
have required a great deal of work. Yet given the formi-
dable advantages a plaintiff enjoys under the Robinson-
Patman Act once it shows price discrimination, we are
not disposed to allow it to stint on the demonstration. For
A-24
all we can tell—for all the jury could have told—Rose Acre
offered uniform blended prices to customers at any par-
ticular time for like-quality goods. Plaintiffs failed to prove
an essential element of their case, and the judgment is
therefore
AFFIRMED
A true Copy:
Teste:
Clerk of the United States Court of
Appeals for the Seventh Circuit
A-25
JUDGMENT—ORAL ARGUMENT
UNITED STATES COURT OF APPEALS
For the Seventh Circuit
Chicago, Illinois 60604
August 4, 1989.
Before
Hon. WILLIAM J. BAUER, Chief Judge
Hon. FRANK H. EASTERBROOK, Circuit Judge
Hon. RoBerT A. GRANT, Senior District Judge
aad 0 ala
A. A. POULTRY FARMS, INC., et al.,
Plaintiffs-Appellants,
No. 88-1426 vs.
ROSE ACRE FARMS, INC.,
Defendant-Appellee.
Appeal from the United States District Court for the
3 Southern District of Indiana, Indianapolis Division.
| No. 81-C-446—James E. Noland, Judge.
This cause was heard on the record from the United
States District Court for the Southern District of Indiana,
Indianapolis Division, and was argued by counsel.
On consideration whereof, IT IS ORDERED AND AD.-
JUDGED by this Court that the judgment of the said
District Court in this cause appealed from be, and the
same is hereby, AFFIRMED, with costs, in accordance
with the opinion of this Court filed this date.
* Honorable Robert A. Grant, of the Northern District of Indiana,
sitting by designation.
A tt te al
APPENDIX B
Opinion and Order of the United States District
Court for the Southern District of Indiana
B-1
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
A.A. POULTRY
FARMS, INC., BOOMSMA
PRODUCE, INC., GRESSEL
PRODUCE CO., INC.
HEMMELGARN & SONS,
INC., MENDELSON EGG
COMPANY, PETER
PRODUCE, INC., and
BOOMSMA PRODUCE OF
MISSOURI, INC.
Plaintiffs,
CAUSE NO.
IP 81-466-C
Vv.
ROSE ACRE FARMS, INC.,
te eet eet See See See ee
Defendant.
JUDGMENT
This cause is before the Court on
the defendant Rose Acre's motion for
judgment notwithstanding the verdict
pursuant to Rule 50(b) of the Federal
Rules of Civil Procedure.
The Court, being duly advised in the
premises and having granted the defendant
Rose Acre's motion for judgment
B-2
notwithstanding the verdict by entry
dated December 28, 1987 and finding no
just reason for delay, hereby enters
judgment for the defendant Rose Acre
Farms, Inc. and against the plaintiffs.
IT IS THEREFORE ORDERED, ADJUDGED
and DECREED that the plaintiffs take
nothing by way of their complaint, that
JUDGMENT be entered herein in favor of
the defendant and that costs be borne
accordingly.
DATED this 3rd day of February,
1988.
James E. Noland
U.S. District Judge
B-3
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
A.A. POULTRY
FARMS, INC., BOOMSMA
PRODUCE, INC., GRESSEL
PRODUCE CO., INC.
HEMMELGARN & SONS,
INC., MENDELSON EGG
COMPANY, PETER
PRODUCE, INC., and
BOOMSMA PRODUCE OF
MISSOURI, INC.
Plaintiffs,
CAUSE NO.
IP 81-466-C
Vv.
ROSE ACRE FARMS, INC.,
Defendant.
ee ee a ee et ee ee ee ee ee ee ee
ORDER
This cause is before the Court upon
the plaintiffs' motion for summary
judgment on the defendant's amended
counterclaim filed October 29, 1987 and
pursuant to the Court's Entry of
December 28, 1987 granting the
defendant's motion for judgment
notwithstanding the verdict and in the
B-4
alternative granting the defendant's
motion for a new trial.
Whereupon the Court, having
considered the motion, the memoranda in
support thereof and in opposition
thereto, the entry of December 28, 1987
and being duly advised in the premises
now finds as follows:
1. The plaintiffs' motion should
be, and hereby is, DENIED; and
2. Pursuant to Fed. R. Civ. P.
54(b), there is no just reason
for delay in the entry of
judgment in favor of the
defendant and the Court
therefore directs the entry of
such judgment.
IT IS SO ORDERED.
DATED this 3rd day of February,
1988.
James E. Noland
U.S. District Judge
B-5
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
A.A. POULTRY
FARMS, INC., BOOMSMA
PRODUCE, INC., GRESSEL
PRODUCE CO., INC.
HEMMELGARN & SONS,
INC., MENDELSON EGG
COMPANY, PETER
PRODUCE, INC., and
BOOMSMA PRODUCE OF
MISSOURI, INC.
Plaintiffs,
Vv. CAUSE NO.
IP 81-466-C
ROSE ACRE FARMS, INC.,
ee ee a ee ee”
Defendant.
MEMORANDUM OPINION
The plaintiffs brought this anti-
trust action against the defendant Rose
Acre Farms, Inc. ("Rose Acre") alleging
that Rose Acre violated Section 2(a) of
the Clayton Act of 1914, as amended by
the Robinson-Patman Act of 1936, 15
U.S.C. § 13 (1982) by engaging in illegal
price discrimination or "predatory
B-6
pricing." This cause was tried to a jury
from October 5, 1987 through October 23,
1987. The jury returned a verdict in
favor of the plaintiffs and assessed
actual damages against Rose Acre in the
amount of $9,285,634.00 which amount
would be trebled pursuant to Section 4 of
the Clayton Act, 15 U.S.C. § 15 (1982).1
Rose Acre has moved for judgment
notwithstanding the verdict pursuant to
Rule 50(b), Federal Rules of Civil
1 section 4 of the Clayton Act
provides in part:
[A]ny person who shall be
injured in his business or property
by reason of anything forbidden in
the antitrust laws may sue therefor
in any district court of the United
States in the district in which the
defendant resides or is found or has
an agent, without respect to the
amount in controversy, and shall
recover threefold the damages by him
sustained, and the cost of suit,
including a reasonable attorney's
fee.
15 U.S.C. § 15 (1982).
B-7
Procedure and, in the alternative, a new
trial pursuant to Rule 59, Federal Rules
of Civil Procedure. The plaintiffs have
moved for Judgment on Rose Acre's
counterclaim which counterclaim alleges
that the plaintiffs' complaint is
groundless and unfounded and the entire ©
litigation, therefore, a sham. By entry
dated December 28, 1987 the Court set
aside the jury verdict in favor of the
plaintiffs and granted Rose Acre's motion
for judgment notwithstanding the verdict
and alternatively its motion for a new
trial. This memorandum opinion is filed
to accompany that entry and also to
direct the entry of judgment in favor of
the defendant Rose Acre. Because the
Court has determined that the entry of
judgment in favor of Rose Acre is
appropriate and that alternatively a new
trial is mandated, the Court must now
B-8
also deny the plaintiffs' motion for
judgment on the amended counterclaim.
I. FACTUAL BACKGROUND
The plaintiffs who brought this
action are all egg processors located in
the midwestern United States who sell
shell eggs to retailers, wholesalers and
market facilitators in the midwest. The
plaintiff A.A. Poultry Farms, Inc. (A.A.
Poultry) is located in West Unity Ohio
and sells eggs to customers in New York
and Pennsylvania among other places. The
plaintiff Boomsma Produce, Inc. (Boomsma)
is located in Pella, Iowa and sells eggs
to customers ii, among other places,
Illinois and Indiana. The plaintiff
Gressel Produce Co., Inc. (Gressel) is
located in Delphos, Ohio and sells eggs
to customers in Ohio and other places.
The plaintiff Hemmelgarn & Sons, Inc.
(Hemmelgarn) is located in Coldwater,
2
B-9 ~
Ohio and sells eggs, among other places,
to customers located in New York, Ohio
and Michigan. The plaintiff Mendelson
Egg Company (Mendelson) is located in
West Unity Ohio and sells eggs in
Michigan, among other places. The
plaintiff Peter Produce, Inc. is located
in Lime Springs, Iowa, and sells eggs in,
among other places, Illinois, Indiana and
Michigan. The plaintiff Boomsma Produce
of Missouri, Inc. (Boomsma Missouri) has
its principal place of business at Pella,
Iowa and sells eggs in, among other
places, Illinois and Missouri. The
plaintiffs compete with the defendant
Rose Acre and with each other to sell
eggs to customers located in the states
mentioned above and in other states.
Generally, an egg processor is a
participant in the egg industry who
prepares eggs for sale to retailers or
B-10
wholesalers before their sale to the
consumer. Processors purchase eggs
directly from egg producers and then
clean, carton, and grade the eggs. The
egg producers from whom the processors
purchase eggs are for the most part small
independent farmers who raise live, egg-
laying hens ("layers") and then sell the
eggs to the processors. The plaintiffs
in this action are all egg processors who
purchase the eggs from producers and then
resell them to wholesalers, retailers or
market facilitators. 2
2 Market facilitators represent an
alternative, ancillary market that
provides an outlet for eggs that are not
disposable along traditional selling
lines. This group includes egg breakers
which are egg product factories that
actually use ("break") the egg to produce
other goods; egg clearing houses which
match suppliers and customers in other
geographic markets; and egg exporters who
sell the eggs in the international
market. Generally, egg breakers
represent the least attractive
alternative to the processors as their
prices are customarily lower. Asa
B-11
The defendant Rose Acre is an
integrated producer and processor of
eggs. As an integrated producer and
processor of eggs, Rose Acre maintains
and raises its own layers to produce the
eggs which it then processes at the same
location and sells to wholesalers,
retailers or market facilitators. The
integrated producer and processor enjoys
certain benefits of efficiency from
producing and processing eggs at a single
location which are not available to the
plaintiffs who purchase eggs elsewhere
for processing.
The prices obtained by an egg
processor for its eggs from its customers
is dependent on the supply and demand for
eggs in his area. The eggs themselves
result, producers do not normally sell
their eggs to the breakers unless such
producer possesses a surplus or excess
supply which would otherwise be
perishable.
B-12
come in different sizes (i.e., pee wee,
small, medium, large, ex-large and jumbo)
and grades (i.e., A or AA), with each
combination of grade and size having an
individual supply and demand. The layers
themselves lay a combination of sizes of
eggs and the producer cannot control what
sizes of eggs are actually produced.
Moreover, eggs are a perishable
commodity. Because eggs have an
indefinite shelf life, the age of the egg
affects its price. Thus, processors may
be forced to sell eggs at lesser prices
or to "breakers" in order to sell them
before they are too old or they expire.
Each carton of eggs is stamped with a
freshness or expiration date which ranges
from two weeks to 30 days from the date
the egg is laia.?
3 Marcus Rust testified that Marsh
Supermarkets requests a freshness or
expiration date of two weeks from the
B-13
The actual pricing of eggs in the
industry is done by formula pricing.
Formula pricing is used in many
agricultural industries where prices vary
from one day to the next. The industry
agrees on some type of formula which is
expressed in terms of a certain price off
some standard. The standard in the egg
industry is the Urner Barry scale. Urner
Barry sets a price for eggs for every day
of the week. When egg processors
contract to sell eggs they look first to
the price set by the Urner Barry scale
and contract to sell the eggs at a price
"off" Urner Barry. Thus, for example, a
processor might agree to sell eggs to a
customer at 5 cents off Urner Barry for
large eggs for a specific period of time.
Until their agreement expires, «ne
date the egg is laid. Generally, the
freshness date is 30 days from the date
the egg is laid.
B-14
customer may purchase large eggs at 5
cents off the current Urner Barry price
per dozen. This price is sometimes
expressed in terms of “five back" meaning
5 cents off the Urner Barry price.
The allegations of price
discrimination made by the plaintiffs
center around the actual pricing
practices of Rose Acre from July 1, 1977
through June 30, 1983, the relevant
period for purposes of this action.
Generally, the plaintiffs have alleged
that Rose Acre targeted customers of the
plaintiffs and sold eggs to them at
special prices in order to induce them to
purchase eggs from Rose Acre instead of
the plaintiffs.
In 1978, Rose Acre borrowed 7
million dollars to build facilities for
the production and processing of eggs.
In 1979, Rose Acre borrowed an additional
B-15
6 million dollars for its expansion
project. Between the period from 1978-
1982, Rose Acre increased its production
capacity from less than 1.5 million
layers to 3.4 million layers, an increase
of about 127 percent. Rose Acre's gross
revenues increased from 15.6 million
dollars to 42.5 million dollars. During
the same period, egg production and
consumption nationally increased by about
3.8 percent. Rose Acre's expansion and
increase in production capabilities
resulted in substantially more eggs for
Rose Acre to market and sell.
During the relevant period, five of
the seven plaintiffs also experienced
increased sales. Boomsma experienced
increased sales of 20,891,000 dollars in
1977 to 27,632,000 dollars in 1983.
Boomsma Missouri experienced increased
sales from 5,272,000 dollars in 1978 to
B-16
9,766,000 dollars in 1983. Hemmelgarn
experienced increased sales from
12,723,000 dollars in 1977 to 30,053,000
dollars in 1983. Mendelson experienced
increased sales from 4,804,000 dollars in
1977 to 6,145,000 dollars in 1983. Peter
Produce had only a small increase from
2,915,000 dollars in sales in 1977 to
2,949,000 in sales in 1983; however,
Peter Produce did have increased sales of
3,361,000 dollars in sales in 1981 and
3,197,000 dollars in 1982. A.A. Poultry
went from 6,222,000 dollars in 1977 toa
low of 4,762,000 dollars in sales in
1983. Gressel had 13,117,000 dollars in
sales in 1977 and went to a sales high of
14,701,000 dollars in 1981 before
declining to 11,251,000 dollars in sales
in 1983.
The evidence showed that during this
period of time, Rose Acre made sales of
ee
B-17
eggs to various customers at lower or
"special" prices. Rose Acre's agreements
with customers for the sale of eggs often
included a specific number of these
specials during the period of the
agreement. The specials comprised a
major portion of all of Rose Acre's sales
during the relevant period of this
action. In fact, the so-called
"specials” may have been considered the
norm. Rose Acre's weekly sales summaries
introduced by the plaintiffs at trial
showed that Rose Acre did offer special
prices on certain eggs to various
customers during the relevant period of
this action.* Additionally, the
4 The weekly sales summaries of Rose
Acre are but a part of the voluminous
documentary evidence produced at trial.
Because the Court has determined that the
difference in prices charged by Rose Acre
to some customers did not cause a
competitive injury, see infra at pp. 8-
26, the Court will not include a review
of each of the documents presented at
B-18
plaintiffs testified that customers who
stopped purchasing eggs from them told
them that they were purchasing eggs from
Rose Acre in order to get a lower price.
The plaintiffs allege that these specials
were sold at prices below Rose Acre's
cost to produce and process the eggs and
as a result of Rose Acre's below cost
pricing competition in the shell egg
market was harmed.
II. ANALYSIS
A. Judgment Notwithstanding
The Verdict
The standard to be employed by this
trial nor review the sales made at
special prices to affected customers.
The Robinson-Patman Act is concerned with
the effects, if any, of the specials on
competition. A specific recounting of
each alleged discriminatory sale will not
aid the Court in determining the effects
of any pricing differences on the market.
The Court infers from the documentary
evidence and the testimony of the
plaintiffs that Rose Acre made many sales
at special prices and will analyze only
the effects of these sales on the market.
B-19
Court in analyzing a motion for judgment
notwithstanding the verdict is whether
there is substantial evidence to support
the verdict. La Montagne v. American
Convenience Products, Inc., 750 F.2d
1405, 1410 (7th Cir. 1984). The Court
may neither judge the credibility of
witnesses nor reweigh the evidence in
order to find a preponderance for one
side or the other. Id., citing Freeman
v. Franzen, 695 F.2d 485, 489 (7th Cir.
1982), cert. denied, 463 U.S. 1214, 103
S.Ct. 3553, 77 L. Ed.2d 1400 (1983). The
only proper inquiry to be made by the
Court is whether the evidence presented
at trial, viewed in a light most
favorable to the party winning the
verdict, is sufficient to support the
verdict. Syvock v. Milwaukee Boiler
Manufacturing Co., 665 F.2d 149, 153 (7th
Cir. 1981). The evidence must be
B-20
substantial. "A mere scintilla of
evidence will not suffice." La Montagne,
750 F.2d at 1410, citing Boeing Co. v.
Shipman, 411 F.2d 365, 374 (5th Cir.
1969).
The plaintiffs have brought this
action alleging that Rose Acre has
engaged in price discrimination at the
primary or seller level. Section 2(a) of
the Clayton Act, as amended by the
Robinson-Patman Act, 15 U.S.C. § 13(a)
prohibits certain pricing practices which
lessen competition. Section 2(a)
provides in pertinent part that:
It shall be unlawful for any
person engaged in commerce, in the
course of such commerce, either
directly or indirectly, to
discriminate in price between
different purchasers of commodities
of like grade and quality, where
either or any cf the purchases
involved in such discrimination are
in commerce, . . . where the effect
of such discrimination may be
substantially to lessen competition
or tend to create a monopoly in any
line of commerce, or to injure,
B-21
destroy, or prevent competition with
any person who either grants or
knowingly receives the benefit of
such discrimination, or with
customers of either of then.
"Price discrimination" in Section 2(a)
means a price difference. F.T.C. v.
Anheuser-Busch, Inc., 363 U.S. 536, 549,
80 S. Ct. 1267, 1274, 4 L. Ed.2d 1385
(1960). Thus, a different price charged
to different buyers for the same product
is price discrimination within the
meaning of Section 2(a). O. Hommel Co.
v. Ferro Corp., 659 F.2d 340, 346 (3d
Cir. 1981), cert. denied, 455 U.S. 1017,
ag2 8. Ct. 1711, 72 L. EA.2da 134 (1982).
However, price discrimination in and of
itself is not illegal per se. Rather,
"(ajt the primary level, the plaintiff
~must show that the ‘effect of such
discrimination may be substantially to
lessen competition or tend to create a
monopoly in any line of commerce. ...'"
B-22
O. Hormel Co., 659 F.2d at 340, citing
Anheuser-Busch, 363 U.S. at 542-43, 553,
80 S. Ct. at 1270-1271, 1276; 4 Von
Kalinowski, Anti-trust Laws and Trade
Regulation §§ 28.08, 29-01[4] (1980);
Utah Pie Co. v. Continental Baking Co.,
386 U.S. 685, 87 S. Ct. 1326, 18 L. Ed.2d
406 (1967); Dean Milk Co. v. F.T.C., 395
F.2d 696, 700 (7th Cir. 1968) (footnote
omitted).
In order to find liability for
illegal price discrimination under
Section 2(a), the plaintiffs in the
present action must show that a
competitive injury resulted from any
differences in price. The plaintiffs may
establish competitive injury by either
showing: "1) actual competitive injury
shown by market analysis; [or] 2)
predatory intent from which competitive
injury may be inferred." 0O. Hommel Co.,
B-23
659 F.2d at 347 (1981).
The evidence in this case showed
that during the relevant period Rose Acre
sold shell eggs to various retailers and
wholesalers at "special prices." Rose
Acre did not offer the same quantity of
specials to each of its customers, nor
did it sell all of its specials to the
various customers at the same price.
Assuming that the selling of such
specials to some customers and not to
others constitutes price discrimination,
the question which must be resolved is
whether the effect of the price
differences was "substantially to lessen
competition or [to] tend to create a
monopoly. .. ." 7
The evidence presented at the trial
of this cause is not sufficient to find
actual competitive injury in the egg
market. Rose Acre expanded its operation
B-24
and facilities during the relevant period
which resulted in an increase in its
production capacity from about 1.5
million layers to 3.4 million layers, an
increase of about 127%. Additionally,
Rose Acre's gross revenues increased from
15.6 million dollars to 42.5 million
dollars. However, during this period of
time, the plaintiffs grew and also
increased their number of layers and
gross revenues. As a group, the
plaintiffs themselves had increased gross
revenues from 60 million dollars in 1977
to over 92 million dollars in 1983.> The
5 At trial the plaintiffs objected
to the grouping of them together to
illustrate that they, as a group, had
increased revenues or egg sales. Because
the Robinson-Patman Act is concerned with
the detrimental effects on competition
rather than on individual competitors, it
is appropriate in this case to look at
the total sales of all the plaintiffs in
combination to demonstrate that growth
within the industry and among Rose Acre's
competitors was occurring during the
period it was alleged that Rose Acre had
B-25
evidence also showed that the plaintiff
Hemmelgarn grew almost as fast as Rose
Acre did during the relevant period,
increasing its eggs sales from about 13
million dollars to over 30 million
dollars in 1983. Experts for both
parties testified that according to
industry publications, 34 new egg
companies entered the market during the
period from 1977-1983. While some of
these companies were not successful, the
average growth of these new entrants was
approximately 220% during the relevant
time. Companies located in the areas in
which Rose Acre sold its eggs which
entered the market or expanded
significantly include Wabash Valley
Produce which grew from 2 million to 3.3
million layers; Midwest Poultry Services
which grew from under 1 million to 2.25
engaged in predatory pricing.
B-26
million layers by 1983; Croton Egg Farm
entered the market and grew to 2.8
million layers by 1983; Daylay Egg Farm
also entered the market and grew to 1.2
million layers by 1983. Additionally,
Creighton Brothers and Weaver Brothers,
both located in Indiana, expanded
operations and grew during this period of
time.
Even the most favorable viewing of
the evidence in favor of the plaintiffs
indicates a healthy, competitive market,
marked by the growth of the plaintiffs
and the entry and growth of other egg
processors in the area. The contention
that Rose Acre's expansion and growth
harmed competition during this period is
untenable. The evidence is insufficient
to support any such contention.
Nor was there any evidence of the
trend toward monopolization of the market
B-27
by Rose Acre. Dr. John Umbeck, expert
witness for the defendant, testified that
at the beginning of the relevant period,
Rose Acre produced about 4% of all eggs
in the four state area of Ohio, Indiana,
Illinois and Michigan where Rose Acre
sold most of its eggs. By the end of the
relevant period Rose Acre's share had
only increased to 8%. Dr. Umbeck
calculated Rose Acres' share of egg
production nationally to be about 1%
during the middle of the relevant period.
Never in the short run or long run
did Rose Acre ever dominate the egg
market. Nor was there a time when Rose
Acre could increase its prices to benefit
from alleged predatory pricing. Rose
Acre made a profit every year except one
during the years in question which belies
the charge of selling eggs before cost.
The Supreme Court has defined
B-28
monopoly power as "the power to control
prices or exclude competition." U.S. v.
Grinnel Corp., 384 U.S. 563, 570-71, 86
S. Ct. 1698, 1703-04, 16 L. Ed.2d 778
(1966) quoting U.S. v. E.I. du Pont De
Nemours & Co., 351 U.S. 377, 391, 76 S.
Ct. 994, 1005, 100 L. Ed. 1264 (1956).
"The existence of such power ordinarily
may be inferred from the predominant
share of the market." Id. Rose Acre's
actual share of the market during this
period in no way reflected monopoly
power. See American Tobacco Co. v. U.S.,
326 U.S. 781, 797, 66 8. CG. 1325, 1333,
90 L. Ed. 1575 (1946) (two-thirds of
domestic field of cigarettes, and 80% of
field of comparable cigarettes
constituted a substantial monopoly) ;
Grinnell Corp., 384 U.S. 570, 86 S. Ct.
1698 (87% of central station business is
monopoly power). An 8% share of the
shell egg market is simply insufficient
|
5 2 a sr a alate a
to establish that Rose Acre had the powe?
.
+4 ~ ~ «
to exclude competition or to contro
_A ‘ * TV<r ‘ } Tne
miaqwest or nationally. see Cargill, Inc.
5 ~~ on Cc
v. Monfort of Colorado, Inc.,
, 107 S. Ct. 484, 93 L. Ed. 427, 441
Associates, Inc. v. Gardner-Denver Co.
718 F.2d 1431, 1434 (6th Cir.), cert.
denied, 467 U.S. 1242, 104 S. Ct. 3513,
82 L. Ed.2d 822 (1984). (10% to 15% -
share of the market not sufficient to
create possibility of injury to
competition). Given the economic
realities cf the egg industry,
particularly the 1/2 cent to 1 cent per
dozen eggs profit margin available to
processors, it would have been impossible
B-30
for Rose Acre to effectively control
prices in the market. Had Rose Acre
attempted to raise its prices at any time
during that period to effectively use its
"monopoly power," any number of
processors would have sold under the
inflated price to sell eggs in line with
the market. The evidence is insufficient
to show a trend toward monopolization of
the industry by Rose Acre.
Even though there is insufficient
evidence from which actual competitive
harm could be found, liability under the
Robinson-Patman Act may be imposed if
there is sufficient evidence of Rose
Acre's predatory intent from which
competitive harm may then be inferred.
MCI Communications v. AT&T Co, 708 F.2d
1081 (7th Cir.), cert. denied, 464 U.S.
891 (1983). Rose Acre's predatory intent
may be proven by showing either express
B-31
evidence of predatory intent or the
inference of predatory intent by showing
pricing below cost. o. Hommel, 659 F.2q
at 347.
The plaintiffs introduced the
testimony of Phil Gressel, owner of the
plaintiff Gressel Produce Co., Inc., to
try to establish direct evidence of Rose
Acre's predatory intent. Mr. Gressel
testified that on one occasion during the
relevant period, Marcus Rust made an
unusual casual visit to Gressel Produce
Co., Inc. During a conversation with Mr.
Gressel, Marcus Rust told him that Rose
Acre would run him out of business.
Other express evidence of predatory
intent introduced at trial included
proposal letters sent by Rose Acre to
various customers outlining terms for the
sale of eggs. Many of these proposal
letters included terms for a number of
B-32
"specials" available to the customers.
While the comment made by Marcus Rust to
Phil Gressel may be some evidence that
Rose Acre intended to compete
aggressively with Gressel, and perhaps
win business from his customers, it does
not constitute substantial evidence that
Rose Acre desired to or intended to
monopolize the entire shell egg market.
The very nature of healthy competition is
marked by businesses which are unable or
unwilling to compete losing business and
perhaps even going out of business. See
Ball Memorial Hospital, Inc. Vv. Mutual
Hospital Insurance, Inc., 784 F.2d 1325,
1338-39 (7th Cir. 1986); Janich Brothers,
Inc. v. American Distilling Co., 570 F.2d
848, 855 (9th Cir. 1977), cert. denied,
439 U.S. 829, 99 S. Ct. 103, 58 L. Ed.2d
122 (1978) (vigorous competition
resulting in efficient firms driving less
B-33
efficient firms out of business not
proscribed by the anti-trust laws). It
is when illegal practices are employed to
drive others out of business that
competition becomes unhealthy to the
point that the anti-trust laws will
impose liability. Even when Marcus
Rust's comment is properly considered
with the evidence that Rose Acre offered
specials to various customers, it is not
sufficient to establish predatory intent.
Evidence introduced at trial indicates
that the offering of specials to
customers is common in the egg industry.
The mere fact that such specials were
offered does not establish predatory
intent.
Predatory intent may be inferred by
showing that Rose Acre priced below its
cost. The plaintiffs have alleged that
Rose Acre priced eggs which it produced
B-34
as a result of its extensive 1977
expansion project below its costs of
producing those eggs. In its
November 17, 1986 Order denying summary
judgment, this Court took a position
favoring the long-run incremental cost
("LRIC") standard as set forth by the
Seventh Circuit Court of Appeals in AT&T,
708 F.2d 1081 as the proper standard to
determine whether Rose Acre engaged in
below cost pricing, which would then
allow an inference of anti-competitive
intent. See AT&T, 708 F.2d at 1111; Utah
Pie Co. v. Continental Baking Co., 386
U.S. 685, 701, 87 S. Ct. 1326, 1335, 18
L. Ed.2d 406 (1967).®
6 The defendant Rose Acre has argued
extensively that the more appropriate or
correct cost standard to be applied to
this case is one which measures "average
variable costs." Because the plaintiffs
have based their claims for relief on the
harm caused them by the additional or
surplus eggs created by Rose Acre's
expansion, the plaintiffs have argued
B-35
In accepting the LRIC cost standard,
the Seventh Circuit noted that the
measure of incremental costs in a
predatory pricing case was a
representation of the average cost to the
defendant of adding "an entire new
service or product rather than merely the
last unit of production." AT&T, 708 F.2d
at 1115. lLong-run incremental cost
measures all of the costs of adding the
new service or product including fixed
and variable costs. Id. The use of
long-run incremental cost rather than of
fully distributed costs as a standard
measures only the costs "which are
causally related to the service or
product in question." AT&T, 708 F.2d at
that long-run incremental cost is the
correct standard. The average variable
cost standard is discussed infra at pp.
40-41 in connection with the Court's
alternative conditional grant of Rose
Acre's motion for a new trial.
si |
B-36 a
1122. Furthermore, "(t]he use of long-
run cost analysis may be particularly
appropriate to capital-intensive
processes where growth of plant and
equipment is marked." AT&T, 708 F.2d at
1115.
The long-run incremental cost
standard was used in the present action
to determine whether the defendant
engaged in predatory pricing. The
plaintiffs alleged in their complaint and
have argued throughout this action that
Rose Acre under went an extensive
expansion during 1977-1983 which resulted
in the growth of Rose Acre at the rate of
more than 200% during the relevant
period. The plaintiffs argue that this
expansion resulted in the creation of
millions of surplus eggs which were
disposed of by Rose Acre by a marketing
strategy which included selling a large
B-37
number of specials to the plaintiffs’
customers. It is these specials which
the plaintiffs contend were sold below
Rose Acre's costs to constitute predatory
pricing practices. Because the
plaintiffs have pursued this case
attacking the allegedly intentionally
created surplus of eggs produced during
Rose Acre's expansion to be sold as
specials, the long-run incremental cost
standard was applied at trial to
determine whether Rose Acre sold those
Specials at a price which was below its
costs.
In its November 17, 1986 order
resolving outstanding motions, this Court
accepted the following definition of
long-run incremental cost: "'total
company cost minus what total cost of the
company would be in absence of product of
x, all divided by the quantity of x being
B-38
produced.' Baumal, Quasi-Permanence of
Price Reductions: A Policy for
Prevention of Predatory Pricing, 89 Yale
L.J. 1, 9n.26 (1979)." AT&T, 708 F.2d
at 1115 n.45.
The granting of the judgment
notwithstanding the verdict is warranted
because the plaintiffs failed to produce
sufficient evidence to support a finding
that Rose Acre priced below cost. The
plaintiffs used two expert witnesses in
an attempt to prove that Rose Acre's
pricing of its specials to customers
during the relevant period was below its
long-run incremental costs. The data and
analysis used by these experts is
inadequate to establish that Rose Acre's
pricing practices were below its costs
under the appropriate cost standard.
Dr. Willard Mueller, economist,
testified as an expert for the plaintiffs
B-39
as to his analysis of Rose Acre's costs
and pricing practices during the relevant
period. Dr. Mueller testified that he
had used three separate methodologies to
osleulete the value of Rose Acre's
specials to the affected customers. Dr.
Mueller testified he then made
comparisons between the values of the
specials under each methodology and Rose
Acre's long-run incremental costs and
determined that under each methodology,
Rose Acre's specials for the ielevant
period were, except in a very few
instances, below its long-run incremental
costs. Dr. Mueller's opinion that Rose
Acre's specials were below its long-run
incremental cost however suffers from one
major flaw. Throughout his discussion of
the cost methodologies, he referred to
Rose Acre's long-run incremental cost as
calculated by the certified public
B-40
accountant.’ Dr. Mueller never made any
calculation as to Rose Acre's long-run
incremental cost, but relied on the long-
run incremental cost figure which he
testified was calculated by the certified
public accountant. While such reliance
is not in itself fatal, the fact that the
certified public accountant later
testified that he was not able to
calculate Rose Acre's long-run
incremental cost because he did not have
sufficient data to make such a
calculation renders Dr. Mueller's opinion
as to Rose Acre's pricing practices
speculative and unreliable. Mr. Richard
Hoeh, the expert certified public
7 pr. Mueller never specifically
named the certified public accountant who
did the calculations upon which he
relied. The most logical inference
favoring the plaintiffs is that the
certified public accountant to whom Dr.
Mueller referred is Mr. Richard Hoeh who
testified after Dr. Mueller as to various
calculations which he made.
B-41
accountant testifying on behalf of the
plaintiffs, explained under cross-
examination the calculations he made:
Mr. Johnstone: It is correct
that what you
have calculated
is an amount for
moagified total
- expense per
dozen of eggs by
your calculation
for Rose Acre
for the years
1976 through the
year 1983?
Mr. Hoeh: Yes, sir, that's
correct.
Mr. Johnstone: And is it
correct that the
figures for
those respective
years in the
line which says
"modified total
expense" is a
number which
would apply to
every egg
produced by Rose
Acre in that
year?
Mr. Hoeh: Yes, it is the
average of all
of the
production.
Mr.
Mr.
Mr.
Mr.
Mr.
Johnstone:
Hoeh:
Johnstone:
Hoeh:
Johnstone:
Hoenh:
B-42
And is it
correct, then,
that the figure
under “modified
total expense"
does not apply
just to the eggs
from any
expansion by
Rose Acre in any
given year?
Yes. Again, it
is the total
production for
the particular
year.
Did you, in
doing your work
for Exhibit 54,
make any
calculation on
the cost of
producing the
incremental eggs
in any year?
This computation
was an attempt
to measure the
total cost, but
Go ahead.
But because I
had no
information
available as to
specific
facilities, that
Mr. Johnstone:
Mr. Hoeh
Mr. Johnstone
Mr.
Mr.
Hoeh, Cross at pp. 73-74
1987) (emphasis added).
Mr.
~
I believe we are
saying the same
thing.
think we are.
4
Is 1 Srrect,
then, that you
did not make any
y=
the cost of
producing the
incremental egas
which resulted
from Rose Acre's
expansion?
Were you asked
to do that?
That's what 1
is an attempt to
do, to the
extent that
information
available.
the
is
(October 16,
Hoeh's
testimony that he did not calculate the
cost of just the incremental eggs
B-44
resulting from Rose Acre's expansion
renders Dr. Mueller's opinions which are
based on the long-run incremental cost
completely useless. Under Mr. Hoeh's
calculations, the "modified total
expenses" equals the average of all
production at Rose Acre by year during
the relevant years and not the
incremental costs of producing the
surplus eggs.
Exhibit 54% prepared by Mr. Hoeh to
illustrate his cost calculations does not
contain any information from which a jury
could infer what Rose Acre's long-run
incremental cost for the relevant years
had been. Mr. Hoeh's calculations,
testimony and Exhibit 54 are the only
evidence produced at trial to show Rose
Acre's costs. Even the most favorable
8 Plaintiffs' Exhibit 54 is
reproduced in full in the appendix
attached hereto.
B-45
treatment of this evidence for the
plaintiffs does not provide any inkling
as to what Rose Acre's long-run
incremental costs as defined by the
Seventh Circuit and this Court actually
were during the period relevant to this
action. The conflicting testimony of Dr.
Mueller that he relied on long-run
incremental cost figure calculated by the
certified public accountant and Mr.
Hoeh's testimony that he was unable to
calculate such a figure leaves a void in
the plaintiffs' case. The jury could not
properly infer from this evidence that
Rose Acre sold eggs below its long-run
incremental costs.
The Court would here point out that
further consideration leads this Court to
believe that the correct terminology
should have been average variable cost or
short-run marginal cost rather than long-
B-46
run incremental cost. The Court's
definition and meaning, however, is still
the same as contained in Jury Instruction
No. 21 which pointed out that Rose Acre's
pricing should cover "the additional
total company cost resulting from the
additional equipment and facilities used
to increase egg production divided by the
increased quantity of eggs being
produced." The results of this change in
terminology is discussed infra at pp. 40-
41.
Because the evidence presented at
trial is insufficient to establish that a
competitive injury resulted from any
difference in price charged by Rose Acre,
the verilict for the plaintiffs cannot
stand. Injury to competition is an
essential element of a Robinson-Patman
Act claim. Without proof of such injury,
judgment for the defendant Rose Acre is
B-47
appropriate. The Court will therefore
vacate the jury verdict and enter
judgment for Rose Acre.
The granting of the defendant's
motion for judgment notwithstanding the
verdict is also warranted under the
"perishability defense" contained in the
Robinson-Patman Act, which excludes from
liability sales made in response to
changing market conditions. The Fourth
Proviso of Section 2(a) of the Act
states:
And provided further, that nothing
herein contained shall prevent price
changes from time to time where in
response to changing conditions
affecting the market or the
marketability of the goods
concerned, such as but not limited
to actual or imminent deterioration
of perishable goods, obsolescence of
seasonable goods, distress sales
under court process, or sales in
good faith in discontinuance of
business in the goods conceived.
15 U.S.C. § 13(a) (emphasis added).
Rose Acre contends that its sales of
B-48
eggs at special prices were made in
response to changing market conditions
and to prevent the deterioration of
perishable goods. The evidence presented
at trial established that eggs are a
perishable commodity which have a short
shelf life. The freshness dates stamped
on each carton of eggs allows up to 30
days from the date the egg is laid until
it “expires" or is no longer fresh.
During this short period of time the egg
processor must clean, grade and package
the egg before distributing it to
wholesalers or retailers for sale to the
consumer. The age of the egg effects its
marketability and the price which the
customer will be willing to pay. Egg
production cannot he regulated by the
farmer in response tc daily fluctuations
of demand for a specific size or grade of
egg. Layers lay a combination of sizes
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of eggs and the producers or processors
must work with the eggs actually
produced. These factors bring the sales
made by Rose Acre during the relevant
period within the Fourth Proviso of the
Robinson-Patman Act.
Rose Acre's sales of eggs to
retailers and wholesalers at special
prices during the relevant period rather
than to market facilitators is protected
by the Fourth Proviso of the Robinson-
Patman Act. The eggs produced by Rose
Acre had to be distributed under the
compulsion of perishability. The mere
fact that Rose Acre, contrary to the
choices of its competitors, chose one
market over another does not render its
actions predatory.
Rule 54(b) Certification
This action involves a counterclaim
filed by the defendant Rose Acre against
B-50
the plaintiffs which was bifurcated from
the complaint for trial by order of this
Court upon motion of the plaintiffs. The
issues raised by the counterclaim have
not yet been tried and are still pending
before this Court. The retention of the
counterclaim raises questions regarding
the finality and appealability of any
judgment entered in favor of the
defendant on the plaintiffs' complaint.
Rule 54(b), Federal Rules of Civil
Procedure allows "the court to direct the
entry of a final judgment as to one or
more but fewer than all of the claims or
parties only upon an express
determination that there is no just
reason for delay and upon an express
direction for the entry of judgment."
The purpose of Rule 54(b) is to prevent
piecemeal litigation and to assure that
the courts of appeals will not be subject
~
B-51
to successive appeals which require the
consideration of the same issues. Jack
Walters & Sons Corp. v. Morton Building,
Inc., 737 F.2d 698, 702 (7th Cir.), cert.
denied, 469 U.S. 1018, 105 S. Ct. 432, 83
L. Ed.2d 359 (1984); O.D.C.
Communications Corp. v. Wenruth
Investments, 826 F.2d 509, 513 (7th Cir.
1987). A certification pursuant to Rule
54(b) requires that the certified claim
be separate from the remaining claim, the
judgment entered on the certified claim
be final under 28 U.S.C. § 1291 and that
district court expressly determine that
there is "no just reason for delay."
Wenruth Investments, 826 F.2d at 512
(citations omitted).
The certified claim and the
remaining counterclaim in this action are
separate within Rule 54(b). The
counterclaim alleges that plaintiffs
B-52
conspired with each other to force Rose
Acre to abandon its anti-competitive
conduct and that when Rose Acre refused
to join in the conspiracy, the plaintiffs
filed their cemplaint to harass Rose
Acre. See Eastern Railroad Presidents
Conference v. Noerr Motor Freight, Inc.,
365 U.S. 127, 81 S&S. Ct. 523, 5 L. Ed.2d
464 (1961); Premier Electrical
Construction Co. v. National Electrical
Contractors Association, Inc., 814 F.2d
358 (7th Cir. 1987). Resolution of the
defendant's counterclaim involves a
different set of factual circumstances
not considered by the Court in trying the
plaintiffs' complaint. While the parties
to the claims are the same, there is no
significant overlapping of facts
necessary to the resolution of their
claims. The district court will not have
to reconsider the facts concerning Rose
LS
B-53
Acre's pricing practices during the
relevant period nor the effects of Rose
Acre's conduct on competition. Rather,
the counterclaim will raise facts
concerning the plaintiffs' conduct and
its harm on Rose Acre --facts not
considered in resolving the plaintiffs'
complaint. Moreover, the relief sought
by the complaint and the counterclaim are
entirely separate. Recovery on the
complaint does not preclude recovery on
the counterclaim. The certified claim
and the counterclaim do not overlap,
factually or legally, and certification
under Rule 54(b) is proper.
It is particularly appropriate that
the Court of Appeals consider the issues
raised by the certified claim at this
time. This action has been pending since
1981 and consequently has involved a
great deal of time and effort by the
B-54
parties, their counsel and the Court.
After consideration of the certified
claim on appeal, should the Court of
Appeals affirm the granting of the
judgment notwithstanding the verdict and
determine that the plaintiffs failed to
prove an anti-trust injury, that matter
would be concluded. Then all that would
remain would be resolution of the
counterclaim. It would be unproductive
for this Court to consider at this time a
counterclaim which raises different
factual and legal issues prior to
allowing an appeal from the entry of
judgment in favor of Rose Acre on the
issues raised in the complaint.
Moreover, in the event that the Court of
Appeals disagrees with this Court on the
entry of judgment notwithstanding the
verdict, the entire matter would be
retried by the Court pursuant to the
7 7
meer
B-55
conditional grant of a new trial.
Because the Court instructed the jury
that the iong-run incremental cost
standard was the correct measure of costs
to determine whether Rose Acre priced
below cost, it would be beneficial to
receive guidance from the Court of
Appeals as to the correct cost standard
prior to any retrial.
As the certified claim raises issues
separate from the counterclaim, there is
no just reason for delay in the entry of
final judgment on the certified clain.
Immediate entry of judgment will allow an
expedient review of the Court's decision
and avoid further delay in the final
resolution of this matter. The Court,
therefore, directs the entry of judgment
in favor of the defendant on the
plaintiffs' complaint. Thus, based upon
the foregoing discussion, it is the
B-56
opinion of this Court that the judgment
in favor of the defendant is ripe for
appeal. The counterclaim will be
considered separately as necessary.
B. Motion For A New Trial
The Court has determined that the
evidence introduced at trial does not
support the verdict and that judgment for
the defendant is appropriate. Should the
Court of Appeals determine that the grant
of the defendant's motion for judgment
notwithstanding the verdict and the entry
of judgment in favor of Rose Acre were in
error, this Court finds that the grant of
the defendant's motion for a new trial is
necessary. The grant of the new trial is
conditional and will become effective
only in the event that the grant of
judgment notwithstanding the verdict is
reversed. See 9 Wright & Miller, Federal
Practice and Procedure § 2540 (1971).
B-57
The authority to grant a motion for
a new trial pursuant to Rule 59, Federal
Rules of Civil Procedure is within the
discretion of the trial court. Allied
Chemical Corp. v. Daiflon, Inc., 449 U.S.
33, 36, 101 S. Ct. 188, 190, 66 L. Ed.2d
193 (1980). In determining whether to
grant a motion for a new trial, unlike
considering a motion for judgment
notwithstanding the verdict, "the judge
may consider the credibility of
witnesses, the weight of the evidence,
and anything else which justice
requires." Spanish Action Committee of
Chicago v. City of Chicago, 766 F.2d 315,
321 (7th Cir. 1985) citing Garrison v.
United States, 62 F.2d 41, 42 (4th Cir.
1932); 9 Wright & Miller, Federal
Practice and Procedure § 25231 (1971).
A review of all of the evidence
indicates that the verdict rendered by
B-58
the jury is against the clear weight of
the evidence and is grossly excessive and
must therefore be set aside and a new
trial granted. Additionally, because the
Court finds that it was in error as to
certain legal determinations it made
during the course of the trial, a new
trial is necessary to prevent a
miscarriage of justice.
Robinson-Patman Liability
This Court has determined that there
is insufficient evidence in the record to
support a finding of liability under the
Robinson-Patman Act because the
plaintiffs failed to demonstrate a
competitive harm or anti-trust injury
compensable by the anti-trust laws. The
Court has reviewed the evidence fully
above at pp. 8-26, and will not undertake
an extensive reanalysis of such evidence
in considering the motion for a new
B-59
trial. The standard to be applied in
considering the motion for the new trial
is more lenient than that in considering
a judgment notwithstanding the verdict--
if the Court finds that the verdict is
against the weight of the evidence, the
grant of a new trial is appropriate. The
specious nature of Dr. Mueller's opinions
as to competitive harm and the lack of
any facts to support these opinions
mandates that the verdict be set aside.
The evidence established the existence of
a healthy, competitive market marked by
the growth of the plaintiffs and the
entry of new companies into the industry
during the period of alleged predation.
The plaintiffs' belief that they would
have been able to grow more during the
relevant period does not give rise to
Robinson-Patman liability. Dr. Mueller's
reliance on Mr. Hoeh's calculation of
B-60
"modified total expenses" as a measure of
Rose Acre's long-run incremental costs
despite Mr. Hoeh's testimony that the
"modified total expenses" is a
calculation of costs for all of Rose
Acre's production and not the cost of
producing the incremental surplus eggs
renders Dr. Mueller's opinions as to
competitive harm speculative and
unreliable. The finding of liability
under the Robinson-Patman Act cannot
stand under these circumstances.
ae Excessive Damages
The financial proof of the damages
which the plaintiffs sustained as a
result of Rose Acre's alleged predation
is insufficient to support the jury's
verdict of over $9,000,000 to the seven
plaintiffs. The calculations of damages
presented by the plaintiffs contained
unfounded assumptions which resulted in
B-61
an award of damages which are totaily out
of line with the profit margin in the
shell egg industry.
The jury awarded the plaintiffs a
total of $3,223,000 in damages from the
loss of net profits on the lost sales to
the plaintiffs' customers which were
allegedly caused by Rose Acre. In order
to prove the plaintiffs' damages from
loss of profits, the plaintiffs relied on
the expert testimony of Mr. Richard Hoeh,
certified public accountant, who made
various calculations to arrive at the
damage figures adopted by the jury. Mr.
Hoeh calculated each of the plaintiff's
loss of net profits by first determining
the volume of sales actually made by Rose
Acre to a specific customer in each
fiscal year. Mr. Hoeh then multiplied
the dollar amount of the sales to each
affected customer by a "net profit
B-62
percentage" for each plaintiff. To
arrive at each plaintiff's "net profit
percentage" Mr. Hoeh testified that:
. - I studied the individual
income statements of the plaintiffs
and I attempted to determine which
expenses they would have had to pay
in addition to those already listed
on the income statement. Since many
of their expenses are fixed in that
they were already spent, and those
expenses would not have been made or
paid a second time, but many
expenses would also have had to have
been incurred if additional sales
were made. For example, if a
company would have had to buy or
process more eggs it would have had
to incur additional costs to ship
those eggs. I judged which of those
expenses would have been made if
additional sales, in fact, had been
realized, and I rounded that
percentage to the net profit
percentage amount that I have listed
in the "Net Profit Percentage"
column. .. .
(Hoeh Direct, p. 26.) For each
plaintiff, Mr. Hoeh calculated a separate
net profit percentage to be applied to
the sales made by Rose Acre to the
affected customer. Multiplying the
dollar amount of the sale to each
B-63
affected customer for each fiscal year by
the net profit percentage equaled the net
income which would have been realized by
the plaintiff had that plaintiff affected
the sales for the customer in that year.
The net profit percentages ranged from
1.00% for Gressel to 5.50% for
Mendelson.? The total of the net income
figures for all the plaintiffs equaled
$3,223,000, the amount of damages awarded
by the jury to represent lost profits.
Mr. Hoe's opinion as to Rose Acre's
damages from loss of net profits lacks a
sufficient factual basis to be a reliable
accounting of any actual damages
allegedly incurred by plaintiffs. The
9 Mr. Hoeh calculated the following
net profit percentages for each of the
plaintiffs:
Mendelson 5.50% Gressel 1.00%
Hemmelgarn 5.00% A.A. Poultry 5.00%
Peter Produce 5.00% Boomsma 3.00%
Boomsma Mo. 5.00%
B-64
foundation of Mr. Hoeh's opinion are
assumptions made by him which are not
supported by any evidence introduced at
trial. The Court recognizes that Mr.
Hoeh undertook a difficult task in
attempting to calculate an event that
never occurred (i.e., sales by the
plaintiffs to the affected customers),
however, even allowing some latitude for
difficulty of the task, the foundation
upon which his opinions are based is too
speculative to support the conclusions he
reached.
Through preliminary questioning by
Mr. Johnstone, counsel for Rose Acre, Mr.
Hoeh testified that his opinions as to
lost sales by the plaintiffs assumed that
all of Rose Acre's sales to each affected
customer would have been realized as
additional sales by the identified
plaintiff. This assumption does not
B-65
consider whether the individual
plaintiffs would have had the capacity or
the ability to sell the eggs as
additional sales to the affected
customers and ignores any sales the
plaintiffs may have made instead of sales
to those particular customers in
mitigation of any losses. Mr. Hoeh's
calculations as to damages begins with
the first sale made by Rose Acre to any
affected customer and assumes that each
every sale made to that customer
thereafter was an illegal sale. His
opinion does not take into account the
effect, if any, that "specials" may have
had on the alleged lost profits but
rather considers each and every sale made
to a customer. Mr. Hoeh's testimony
further assumes that all of the eggs
which Rose Acre sold to Balberman, a
wholesaler who resold eggs to a number of
B-66
retailers, were resold to one customer,
Allied, a customer to whom one of the
plaintiffs had previously sold.
Similarly, his opinion assumes that all
of the eggs which Rose Acre sold to
Certified were resold to Butera, a
customer of one of the plaintiffs. There
is no evidence in the record which would
tend to support the assumption that all
of the eggs Rose Acre sold to either
Balberman or Certified were, in fact,
resold to only one customer. The
plaintiffs' loss of profits calculations
are based on too many assumptions of fact
which are unsubstantiated by the factual
evidence presented at trial. The
resulting damages for loss of profits
calculated by Mr. Hoeh are not reliable
estimates.
The unreliability and
speculativeness of the calculation is
B-67
further illustrated by net profit
percentage calculated by Mr. Hoeh for
each plaintiff. Mr. Hoeh calculated that
plaintiff Mendelson had a net profit
percentage of 5.5%. Practically, this
means that if eggs were selling at 50
cents per dozen,19 Mendelson's profit per
dozen eggs would equal 2-1/4 cents per
dozen eggs; if eggs were selling for 60
cents per dozen, Mendelson's profit per
dozen eggs would equal over 3 cents per
dozen. Testimony during the trial from
witnesses for the plaintiffs and
defendant was that the profit margin in
the industry for processors ranged from a
low of 1/2 cent per dozen to a high of l
cent per dozen eggs. In the most extreme
case, the net profit percentage
10 Testimony at trial established
that during the relevant period eggs sold
from a low of 40 cents per dozen to a
high of 60 to 70 cents per dozen.
B-68
calculated by Mr. Hoeh would allow
Mendelson to recover two or three times
the profit margin for the shell egg
industry. The resulting damages are
excessive.
The jury awarded an additional sum
of over $6,000,000 to compensate the
plaintiffs for the losses they allegedly
suffered due to a general decline of
prices in the market allegedly caused by
Rose Acre's marketing and selling more
eggs. This Court has fully discussed its
determination that no competitive harm
resulted from any of Rose Acre's sales
during the relevant period because the
evidence indicated a healthy, competitive
market. The damages awarded the
plaintiffs for harm due to a decline in
price are unfounded. Because Rose Acre
is an integrated producer an
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